Overview

1. Economics as a Science
2. Prouction Possibilities Fronteir

Readings: Ch. 1 & 2

Economics as a Science: economics is a social science that seeks to explain how people act.
Like any other science, it uses models, theories & assumptions to describe how people behave.

A model is a simplified description of the way things work. A model is not a complete
description of every detail but rather a simple description that covers a wide range of
possibilities.
Models and theories are meant to provide an understanding and explanation. They
should also be useful in predicting behaviour.

Economics is an empirical science. Theories and models are tested against observed
information

The correlation Fallacy: the incorrect belief that correlation implies causation
The Post Hac Fallacy: is a special case of the correlation fallacy. An error of reasoning that a
first event causes a second event because the first occurred before the second.
Fallacy of Composition: incorrect belief that what is true for the individual is also true for the
group
The Production Possibilities Frontier: Production possibilities frontier is a graph that shows
the combinations of goods that can be produced when the factors of production are utilized to
their full potential. (LABOUR, CAPITAL, RESOURCES). Shows us what we’re capable of
producing on one singular day.

Pizz a
as b g

f
d

e
Lapt
Freedon ops
ia
Points a, b, c, d, e, f are attainable
Point g is unattainable
Points a, b, c, d, e, f are efficent
Point f is unefficent
Opportunity Cost is the benefits given up by not using the resources in a next best alternative
way. (explicit costs / opportunity costs)
 Pizz a
as g
b

c
Opportu
nity
costs d

e
Lapt
Freedon ops
ia

Hr of reading Hr of problems

0 20q

1 15q

2 10q

3 5q

4 0q