Thinking like an economist

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.title[
# Thinking like an economist
]
.author[
### Hussain Hadah
]
.date[
### University of Houston | July 11 2022
]

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# Table of contents

1. [The Economist as Scientist](#intro)

2. [Economic Models](#models)

3. [Microeconomics vs Macroeconomics](#micromacro)

4. [The Economist as as a Policy Advisor](#adv)

5. [Examples on how Economist Analyze Data](#data)

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# The Economist as Scientist

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# Economics as a science

Economists approach their subjects with scientific objectivity. Just as in physics or biology, economists suggest a theory, collect data to analyze the theory to reject or accept it. Just like other scientists, economics at its core uses the <span style="color:DodgerBlue;">_scientific method_</span>.

## The Scientific Method: Observation, Theory, and More Observations

- Economists observe the world and devise theories

For example, an economist can observe that different countries experience different economic growth and could attribute that to the differences in institutions.

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# The Role of Assumptions

- Economists make assumptions
- These assumptions simplify the complexity of the world

--
### Example:
Economists often assume that people are rational agents. Therefore, the decision-making process is rational. This assumption is unrealistic, but it does help us understand how people make decisions.

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# Economic Models

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# Economist use models to understand the world

> “All models are wrong, but some are useful”. George E. P. Box

Economists use models to simplify how the world works and learn about it. Economic models consist of diagrams and equations. Economists use models to study economic issues, and you will encounter a few of them in this class and all of these models will have assumptions.

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# The Circular-Flow Diagram

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# The Production Possibilities Frontier (PPF)

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# A technological shock shifts the PPF

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# Microeconomics vs Macroeconomics

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# Definitions

<h3>
  <ol>
    <li>Microeconomics is the study of how households and firms make decisions and how they interact in a market. A microeconomist studies the effect of college education on income, the effect of minimum wage on wellbeing and hours worked.</li>
    <li>Macroeconomics is the study of an economy-wide phenomenon. A macroeconomist studies the effect of the unemployment rate on inflation.</li>
  </ol>
</h3>
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# The Economist as a Policy Advisor

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# Positive versus Normative Analysis

<h3>
  <ol>
    <li>Positive statements are claims about how the world <em>is</em>. Positive statements are descriptive.
    <li>Normative statements are claims about how the world <em>ought to be</em>. Normative statements are prescriptive.</li>
  </ol>
</h3>
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# Examples of how Economist Analyze Data

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# Scatter plots

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# Tables

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# We can plot the data in a table

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# An income shock shifts the demand curve

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# Calculating the slope

$$
`\begin{equation}
Slope = \frac{y_{2} - y_{1}}{x_{2}-x_{1}}
\end{equation}`
$$
The slope tells us how much the quantity demanded will change given a price change. A slope of `$-\frac{1}{4}$` implies that a $1 decrease in price will increase the number of books that are demanded by 4.

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# Beaware of omitted variables

- Does buying more lighters cause cancer?
- Can you think of a reason why this relationship showed up in the data?
- What are we missing?
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# Beaware of omitted variables

- Does having more police cause more crime?
- What is an alternative explanation?