1.3 The economist’s approach.
Models or theories: Are frameworks for organizing how we think about an economic problem.
Positive economics question: Studies objective or scientific explanations of how the economy works. (vb: What level of production will maximize the firm’s profits?).
Normative economics statement: Offers recommendations based on personal value judgements. (vb: firms should maximize profits).
Positive relationship: Exists between two variables if the values for both variables increase and decrease together.
Negative relationship: Exists between two variables if the values for one variable increase (decrease) as the value of the other variable decreases (increases).
Equation of a straight line: Y= a + bX Equation of a quadratic line: Y= a + bX + cX²
Gradient: Measure of the slope of the line. DeltaY/DeltaX
Time series data: Are the measurements of one variable at different points in time.
Cross-Sectional data: Are the measurements of one variable at the same point in time across different individuals.
Panel Data: Combines cross-sectional and time series data.