经济解释卷一第一至第三章课件.ppt

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1、Chapter 1:The Scope of Economic AnalysisHKAL Microeconomics T.W.G.Hs.Lo Kon Ting Memorial CollegeReferences:References:A-Level MicroeconomicsA-Level Microeconomics,CH.1,2&15,CH.1,2&15HKALE MicroeconomicsHKALE Microeconomics,CH.1,2,14&19,CH.1,2,14&19張五常張五常經濟解釋卷一經濟解釋卷一第一至第三章第一至第三章Exchange and Producti

2、onExchange and Production,CH.1&5,CH.1&5By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041 1CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisWhat is Economics?n nan empirical science resting on the assertion or postulate of self-interest to explain observable economic behavior o

3、r phenomenan nhistory repeats itself,however,facts do not speak for themselves n neconomists therefore need to theorize in order to explain and predict facts/economic phenomena.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042 2CH1-The Scope of Economic AnalysisCH1-The Scope of Economic Analysis

4、What is Economics?n nAs an empirical science,economic theories are constructed:to explain human behavior by finding to explain human behavior by finding out what conditions lead to what out what conditions lead to what consequencesconsequencestoto predict predict the occurrence of similar the occurr

5、ence of similar events in the future and events in the future and how behavior how behavior will change when there is a change in will change when there is a change in the constraints they face.the constraints they face.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043 3CH1-The Scope of Economic

6、 AnalysisCH1-The Scope of Economic AnalysisPositive Versus Normative Economicsn nPositive economics contains descriptive statements,propositions and predictions about the world.n nNormative economics makes statements about what ought to be,or about what a person,organization or nation ought to do.n

7、nEx 1:Ex 1:Is A-L economics concerning about positive Is A-L economics concerning about positive or normative one?or normative one?By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20044 4CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisAttributes of Economic Analysisn nEconomic ana

8、lysis is solely scientific and strictly positive.n nEconomic theory rests on understanding of human traits.theories are abstractions of the worldtheories are abstractions of the worldto theorize is to pick out the to theorize is to pick out the relevantsrelevants from the from the irrelevantsirrelev

9、ants n nEconomists construct and test theories.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20045 5CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisMethodology Scientific Inquiry:Constructing Theoriesn ninteresting real-world observations prompt the construction of a theoryn np

10、ostulating economic behavior(i.e.making axioms or basic assumptions)n npicking out relevants from the irrelevants(i.e.making abstractions)By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20046 6CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisMethodology Scientific Inquiry:Construc

11、ting a Theoryn nestablishing the interrelationship among variables and ideas in the form of hypothesis(including test conditions&predicted outcomes)i.e.If A,then B via logical deductionn nmaking a logically consistent implication or predictionBy Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20047 7CH

12、1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisMethodology Scientific Inquiry:Constructing a Theoryn nconfronting the real-world observations with the testable implication(i.e.testing the hypothesis/model/theory)n na theory is valid if it is confirmed/not rejected by the factsBy M

13、r.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20048 8CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisMethodology Scientific Inquiry:Constructing a Theoryn na theory is invalid if it is rejected by facts,and is being discarded or amended with adding more constraints and is being re-

14、tested.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20049 9CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisSix Basic Postulatesn nEach person desires many goods&has many goals.n nFor each person,some goods are scarce.n nEach person is willing to forsake some of a good to get m

15、ore of other goods.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041010CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisSix Basic Postulatesn nThe more of a good one has,the larger the total personal use value,but the lower the marginal personal value of a unit.n nNot all peop

16、le have identical tastes and preferences.n nPeople are innovative but consistent.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041111CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisThe Validity and Usefulness of a Theoryn na theory is said to be a useful if it has implication

17、s that are potentially refutable but have not yet refutedEx 2:Ex 2:Can a theory be proved wrong?Can a theory be proved wrong?n nWe never say a theory is proven because we just do not know whether the next set of collected data will still agree with the implications or not.By Mr.LAU san-fat/ver 2004B

18、y Mr.LAU san-fat/ver 20041212CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisThe Validity and Usefulness of a Theoryn nIf the empirically collected data agree with the implications,then the theory is said to be confirmed and valid.If not,it is refuted or rejected and invalid.n nA

19、 theory that can never be rejected is useless because it is either a tautology(a definitional identity)or we are not clear what is about.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041313CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisThe Validity and Usefulness of a Theory

20、n nThe usefulness of a theory is based on its explanatory and predictive power.As As Milton FriedmanMilton Friedman said,The value of a said,The value of a model does not depend on the realism model does not depend on the realism of its assumptions but on its ability to of its assumptions but on its

21、 ability to explain or predict real world events.“explain or predict real world events.“By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041414CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisAttributes of a Useful Theoryn neconomic theory must be a simplification of economic the

22、ory must be a simplification of realityrealityn nassumptions may be unrealistic because:assumptions may be unrealistic because:the statement does not give an exhaustive the statement does not give an exhaustive description of an objectdescription of an object the statement is false or highly improba

23、blethe statement is false or highly improbable the statement(excluding test conditions)is used the statement(excluding test conditions)is used to formulate pure cases or ideal typesto formulate pure cases or ideal typesn nthe arguments must be the arguments must be logically consistentlogically cons

24、istent if A then B and B then C,A is preferred to Cif A then B and B then C,A is preferred to CBy Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041515CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisAttributes of a Useful Theoryn nimplications and predictions must be testable or

25、observablen nthe theory is potentially refutable by factsn nvariables in the theory must be observableBy Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041616CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisAttributes of a Useful Theoryn nthe power to generalizeif a hypothesis is

26、repeatedly supported by if a hypothesis is repeatedly supported by the evidence and repeatedly accepted(or the evidence and repeatedly accepted(or confirmed),it may be called a lawconfirmed),it may be called a lawn nGreat predictive power,not forecasting powerEx 3:Ex 3:What is the difference between

27、 forecast&What is the difference between forecast&predict?predict?By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041717CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nHypothesis is logically deducted,testable,refutable,and usually expre

28、ssed in terms of If A(assumptions),then B(implications).By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041818CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nRejected theory can be modified by adding more assumptions to the theory at the

29、 expense of losing its power to generalize,i.e.it can apply to a narrower variety of situations.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20041919CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nan ad hoc theory is a very specific the

30、ory that can be applied only to one(or a few)particular situation.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042020CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nAn example of ad hoc theory:If it rains+outdoor+without umbrella If i

31、t rains+outdoor+without umbrella+without raincoat+without cap+without raincoat+without cap+without hat+without shelter+not without hat+without shelter+not standing under a tree+not standing standing under a tree+not standing under a coverunder a cover(A)(A),then youll get wetthen youll get wet(B)(B)

32、.n nExampleExample from Steven N.S.Cheung:dropping from Steven N.S.Cheung:dropping temperature in high mountainstemperature in high mountainsBy Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042121CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautol

33、ogyn nA tautology(a definitional identity)is so generalized and true for all values of the variables.n nExample:A four-leg-animal has four legs n nIt is empty and has no explanatory nor predictive power at all.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042222CH1-The Scope of Economic Analysis

34、CH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nBut a tautology could be developed into a useful theory if testable conditions are added.The Coase Theorem and Quantity Theorem of Money are two examples of these.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042323CH1-Th

35、e Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and TautologyEx 4:Ex 4:Is an ad hoc theory or a tautology better Is an ad hoc theory or a tautology better theory?theory?By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042424CH1-The Scope of Economic AnalysisCH

36、1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautologyn nA useful theory must then strive for the A useful theory must then strive for the right balance between the degree of right balance between the degree of generality and refutability by avoiding generality and refutability by av

37、oiding adding too specific or generalized conditions adding too specific or generalized conditions to its construction.Therefore,a useful to its construction.Therefore,a useful theory must fall theory must fall in betweenin between the ad hoc the ad hoc theory and tautology.theory and tautology.By M

38、r.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042525CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisHypothesis,Ad Hoc Theory and Tautology.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042626CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical Fallacies

39、nLogically speaking,we must affirm the antecedent in the hypothesis in order for the consequent to follow with logical necessity.If A is true,then B is true;A is true,therefore B is true.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042727CH1-The Scope of Economic AnalysisCH1-The Scope of Econom

40、ic AnalysisLogical FallaciesExample:If Jessie is a trained secretary,then she knows how to use a typewriter correctly;Jessie is a trained secretary,therefore she knows how to use a typewriter correctly.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042828CH1-The Scope of Economic AnalysisCH1-The

41、Scope of Economic AnalysisLogical FallaciesnOn the other hand,we can deny the truth of a hypothesis with reference to the facts:denying the consequent.If A is true,then B is true;B is NOT true,therefore A is NOT true.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20042929CH1-The Scope of Economic A

42、nalysisCH1-The Scope of Economic AnalysisLogical FallaciesnExample:If Jessie is a trained secretary,then she knows how to use a typewriter correctly;Jessie does not know how to use a typewriter correctly,therefore she is not a trained secretary.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 2004303

43、0CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical FallaciesnFallacy 1:Affirming the consequentIf A is true,then B is true;if B is true,therefore A is true.Example:If Jessie is a trained secretary,then she knows how to use a typewriter correctly;Jessie knows how to use a ty

44、pewriter correctly,therefore she is a trained secretary.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043131CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical FallaciesnFallacy 2:Denying the antecedentIf A is true,then B is true;if A is not true,therefore B is not true.E

45、xample:If Jessie is a trained secretary,then she knows how to use a typewriter correctly;Jessie is not a trained secretary,therefore she must not know how to use a typewriter correctly.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043232CH1-The Scope of Economic AnalysisCH1-The Scope of Economic

46、 AnalysisLogical FallaciesnWhen“A”is said to be a necessary condition for“B”,it means that occurrence(or true)of“B”implies the occurrence(or true)of“A”,i.e.“If A is true,then B is true;B is true,therefore A is true”.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043333CH1-The Scope of Economic An

47、alysisCH1-The Scope of Economic AnalysisLogical FallaciesnWhile“A”is said to be a sufficient condition for“B”,it means that the occurrence(or true)of“A”implies the occurrence(or true)of“B”,i.e.“If A is true,then B is true;A is true,therefore B is true”.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver

48、 20043434CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical FallaciesnWhen“A”is both a necessary and sufficient condition for“B”,it means that the occurrence of one implies the occurrence(or true)of the other,i.e.“If A is true,then B is true;A is true,therefore B is true”and

49、“B is true,therefore A is true”.By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043535CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical FallaciesnEconomic proposition/hypothesis of“If A,then B”only posits that“A”is a sufficient condition for the occurrence of“B”,i.e.“If A

50、 is true,then B is true;A is true,therefore B is true.”(Affirming the antecedent but with no logical fallacy)By Mr.LAU san-fat/ver 2004By Mr.LAU san-fat/ver 20043636CH1-The Scope of Economic AnalysisCH1-The Scope of Economic AnalysisLogical FallaciesnExample:If“If Jessie is a trained secretary,then