Fundamentals

• Critical thinking


  The intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and/or evaluating information gathered from, or generated by, observation, experience, reflection, reasoning, or communication, as a guide to belief and action
• Critical thinking skills allow you to evaluate and analyze information from different perspectives
• Critical thinking involves the ability to objectively analyze and evaluate information, arguments, and opinions, and to form your own conclusions based on evidence
• Universal intellectual values that transcend subject matter divisions

  • Clarity
  • Accuracy
  • Precision
  • Consistency
  • Relevance
  • Sound evidence
  • Good reasons
  • Depth
  • Breadth
  • Fairness
• Elements of thought implicit in all reasoning

  • Purpose
  • Problem or question-at-issue
  • Assumptions
  • Concepts
  • Empirical grounding
  • Reasoning leading to conclusions
  • Implication and consequences
  • Objections from alternative viewpoints
  • Frame of reference
• Critical thinking is incorporated in a family of interwoven modes of thinking, among them: scientific thinking, mathematical thinking, historical thinking, anthropological thinking, economic thinking, moral thinking, and philosophical thinking
• Economic model


  A simplified representation of a particular feature of the world that we want to understand
• Main ingredients of an economic model

  • Description of the individuals and the economic variables that we are interested in explaining
  • Assumptions on the behaviour of the individuals and on the relationships between the variables
  • Outcomes (the predictions of the model that follow logically from the assumptions)
• Econometrics


  The term used to refer to statistics to measure relationships in economic data
• Ways data interacts with models

  • Data inform us on a particular feature of the real world we may want to investigate further by developing a model about it
  • Data help us quantify the relationships to which our theoretical models draw attention
  • Data help us to test our models
• Theoretical models


  Seek to derive verifiable implications about economic behavior under the assumption that agents maximize specific objectives subject to constraints that are well defined in the model
• Empirical models


  Aim to verify the qualitative predictions of theoretical models and convert these predictions to precise, numerical outcomes
• Consumer


  An individual or a group of individuals who intends purchase or use goods or services to satisfy their wants within the budget constraints. They are the final user of an item–a good or service
• Firm


  A business organisation such as a corporation that produces and sells goods and services with the aim of generating revenue and making a profit
• Competition


  The process by which various sellers each try to offer better products, lower prices, and other advantages to choosing their wares over a rival's
• Market


  The process by which those who demand and those who supply the good or service in question exchange it
• Market equilibrium


  The state in which market supply and demand balance each other, and as a result prices become stable
• Government


  The system or group of people governing an organized community. It provides the legal and social framework, maintain competition, provide public goods and services, redistribute income, correct for externalities, and stabilize the economy
• Types of goods


  • Commodity (raw material used in production)
  • Hard commodity (natural resources)
  • Soft commodity (agricultural produce, livestock, and related primary products)
  • Product (finished good sold to consumers)
  • Durable consumer good
  • Consumable good
  • Giffen good
  • Inferior good
  • Normal good
• Utility


  The satisfaction levels consumers receive from buying and using a product or service
• Profit


  The difference between a firm's revenue and its total cost
• Revenue


  The income that a firm receives from the sale of a good or service to its customers
• Price


  The amount of money expected, required, or given in payment for something
• Willingness to pay (WTP)


  The maximum amount an individual is willing to sacrifice to procure a good
• Types of costs


  • Accounting cost
  • Economic cost
  • Opportunity cost
• Personal income


  The total earnings of an individual from various sources such as wages, investment ventures, and other sources of income
• Welfare


  The study of how the allocation of resources and goods affects social welfare
• Social welfare


  A type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter
• Ceteris paribus


  Other things being held constant
• Demand


  The maximum quantity of a good that an individual wishes (or individuals collectively wish) to purchase given the price of the good, ceteris paribus, during a given period of time
• Supply


  The maximum amount of a particular good or service that an organisation is willing to provide for sale at each possible price of the good, ceteris paribus, in a given period
• Game theory


  A model that analyzes economic behavior as a series of strategic moves and countermoves by rival agents
• Key elements of game theory

  • Game (any set of circumstances that has a result dependent on the actions of two or more decision-makers)
  • Players (strategic decision-makers within the context of the game)
  • Strategy (a complete plan of action a player will take given the set of circumstances that might arise within the game)
  • Payoff (the payout a player receives from arriving at a particular outcome)
  • Information set (the information available at a given point in the game)
  • Equilibrium (the point in a game where both players have made their decisions and an outcome is reached)
• Assumptions of game theory

  • The number of competitors or players is finite
  • All competitors are rational and intelligent
  • Every player knows the rules, consequences, and other game-related details
  • Players can opt for different strategies to solve a problem
  • All players in the game have a finite number of courses of action
  • The players aim to minimize losses and maximize gains
  • All players have to make their choice simultaneously to avoid the possibility of a player knowing their competitor's choice before deciding their course of action
• Nash equilibrium


  An outcome reached that, once achieved, means no player can increase payoff by changing decisions unilaterally
• No regret equilibrium


  After the choices made, every single player is satisfied with their choice made given the choices made by other players
• Dominant strategy


  A strategy that results in the highest payoff to a player regardless of the opponent's action
• Types of games in game theory

  • Cooperative vs. Non-Cooperative Games
  • Zero-Sum vs. Non-Zero-Sum Games
  • Simultaneous Move vs. Sequential Move Games
  • One Shot vs. Repeated Games
• Cooperative models assume that agents have cooperative mechanisms (to make binding commitments) outside the specified rules of the game. Cooperative solutions focus on how to allocate the benefits resulting from the cooperation
• Non-cooperative models assume that players do not have cooperative mechanisms (to make binding commitments) outside the specified rules of the game. Non-cooperative solutions focus on how to behave strategically