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Economics:
Scarcity and Choice
Economics:
Scarcity and Choice Economic Models
Regan
Whitworth, Bring to class in separate boxes an elaborate plastic model airplane and a balsa glider. Display the plastic model to the class, pointing out all the "realistic" features of the model: its color, rivets, visible seams between plates, markings, etc. Then point out that it's really NOT realistic: it's made of plastic, not metal; has no seats; is not big enough to get into; and moreover, it won't do the one thing which airplanes must do: FLY!!! Remove the balsa model from its box. Point out that this model, which many people would regard as much less realistic, will fly. A demonstration is sometimes a useful diversion.
It can then be pointed out that no model
is realistic, in the sense that it can't do everything the original does, or
it wouldn't be a model. The kind of model one chooses depends on what one is
trying to find out. Both models have their uses, but neither is
"realistic" if put to the wrong use.
Joe A. Garwood, Valencia Community College Early in the Principles course we all usually deal with the concept of abstracting and its importance to economics. We need to do this to show why it's necessary to abstract, and to allay student apprehensions about our simplified examples and heavy use of models, theories, principles, etc. I ask a student whom I know to be single
whether or not he or she ever intends to marry. If the answer is yes, I point
out that there are roughly three billion people of the opposite sex to choose
from and that finding "Mr. or Ms. Right" could be quite a chore. I
then ask how the student intends to go about finding the ideal mate. In
response, the student will indicate that certain criteria are used to reduce
the sample to manageable proportions, e.g., appearance, education, location,
personality, religion, or special interests. After going through this process I point
out that the student has been abstracting and emphasize how necessary it is
to the final outcome. I also point out that the criteria used represent
theories about what will make the ideal mate for that student. Conclusion ‑
abstractions and theories are absolutely essential if we are to make any
sense out of the real world. This is a real interest grabber and it develops
an appreciation for the need to abstract. Economic Models and Paper Planes Rose M. Rubin, University of North Texas Students often have difficulty initially grasping the concepts of modeling and of economic models as representations of theory. I find that this idea can be presented in a readily comprehensible way by using what is probably the most instantly recognized "model" a paper airplane. I follow a standard discussion of
"What is Economics?," by discussing the methodology of economics.
As I proceed, I very ostentatiously pick up a large piece of paper
(preferably colored, which is easily visible to the entire class) and start
folding what the students quickly recognize to be a simple paper airplane. At
the proper point in the discussion to introduce the concept of a
"model," I hold it up and ask, "What is this?" Someone in
the class inevitably responds, "A paper airplane," so that I can
then ask, "How do you know it is an airplane?" The usual response
is in terms of, "It looks like an airplane." or "It has
wings." (Sometimes, a member of the class will come up with the word
"model"). Then, I introduce the idea that there are certain,
specific variables or factors which indicate that this is a "model"
of a plane. While it is clearly a "plane," it does not include all
the details of an actual plane, i.e. no motor, no propeller or jets, no
wheels, etc. Nonetheless, it has been clearly recognized as a paper airplane
or model of an airplane. Then I draw the analogy between the
"plane" and economic models or theories as abstractions from
reality, which are nonetheless representations and which describe the entire
economy (macro) or specific areas of the economy, such as markets (micro).
Further, these abstractions may contain only key variables, (give examples)
and still represent a complex economy, just as the paper airplane is recognizable
by its wings. The second stage of this demonstration
is to ask, "Will it fly?" Of course, the students know that it
potentially will and usually respond, "Try it" or "Test
it." This leads into a discussion of the use and usefulness of models
not only for initial description of the economy, but also to show that change
in the variables permits analysis of resulting changes which occur in the
system. At this point, add ailerons on the wings or a paper-clip ballast to
the paper airplane and see what happens to the direction of flight to
demonstrate changing or adding variables to the system. Logical Fallacies Illustrating the Fallacy of
Composition Steven T. Call, Metropolitan State College of Denver Failure to avoid the fallacy of composition accounts for many errors in economic analysis, both by professional economists and by laymen. I use variants of the following two examples to illustrate the fallacy. They are particularly effective in large classes. (a) Place your class notes where they are difficult to see from the rear of the room. Ask a student somewhere near the middle or rear of the class if he can see your notes. If done properly, the student will say no. Ask him to stand. He should now be able to see the notes. Since the class is simply the sum of individual students, it should follow that if everyone stands up, everyone should be able to see your notes better. Ask the class to rise. In large classes, no one can see anything. This is a powerful demonstration. (b) Ask a student to quietly drop his or her desk top (where feasible). This can be done with very little disturbance to the class. Again, since any one student can do it, and since the class is just the sum of students, everyone should be able to lower their desk tops simultaneously without disturbance. In a large class, the sound is deafening and very effective. This technique sets up the class for a wide variety of policy and theoretical issues where aggregation and externalities are important. Ralph Byrns, University of North Carolina
at Chapel Hill One way to enrich a discussion of scientific methods and the process of theorizing is to discuss some of the more common logical fallacies. Among these are: (a) Appeals to authority, or ad hominem arguments. Albert Einstein (or the Bible, or the president, or my Mother) said that "...". Therefore, it must be true that "...". Alternatively, communists (or the devil) believe that "...". Therefore, "..." is obviously wrong. Or, Keynes was a communist and therefore, his suggestion that "..." must be wrong. Such appeals are, of course, not compatible with logical or scientific approaches to solving problems. (b) Post hoc ergo propter hoc. Precedence does not imply causation. To make this point, suggest that if the idea that anything that follows another is necessarily caused by the first, then roosters would be justified in believing that early morning crowing causes the sun to rise. Similarly, union wage hikes or big government deficits, or growth in the money supply do not necessarily cause price inflation simply because they precede it. Nor does victory by the National Football Conference team in the Super Bowl necessarily portend an increase in the Dow Jones index, etc. These are simply statistical artifacts until more scientific causal explanations are developed and tested. (c) Composition and Decomposition. The whole may be either greater than (synergy) or less than the sum of its parts. If you buy all of a cow's components at your local butcher shop, you will still be unable to assemble a cow. Similarly, a crowd of people may behave very differently than any of the individuals that comprise it would alone (e.g., a lynch mob). A basketball player who tries to play against a five member team is unlikely to score one‑fifth as many points as any team composed of five individuals, even if they are less talented on average. Nor would two teams of 50 players each be likely to score 10 times as many baskets as two standard 5‑member teams. Logical Errors in Rain Dancing Gary M. Galles, Pepperdine University and University of California, Los Angeles It is often difficult to impress students with the necessity to consistently apply the logic of opportunity cost thinking to reach correct conclusions. To drive this point home, I ask how accurate the results of a string of implications AàBà...-->Z would be if an error were made somewhere in the chain. They see that the conclusion can be way off, and farther off the earlier in the chain the error comes (even if all the other links are logically correct), which I use to emphasize the special importance of examining the beginning assumptions of a chain of logic as well as each implication step. I then illustrate the point with the example of rain dancing. I ask the students why rain dancing
could arise and persist for over a century when it does not affect whether
rain falls. All it takes is a view of God as one who needs appeasement and a
post hoc, ergo propter hoc fallacy. Once I get the idea of dancing to appease
the rain god (whose anger is shown by the fact that it hasn't rained when it
should have), and it rains after such a dance, the post hoc ergo propter hoc
conclusion that the dancing caused the rain could easily be reached. Once
this is established as a theory, there is no natural tendency to correct the
error. If the tribe dances long enough, it will rain; if it doesn't rain,
they didn't dance well enough, or long enough, or their hearts weren't in it
or it wasn't enough like the ancestors did it. Further steps in logic are
taken, starting from the error rather than examining the initial error. Bienvenido S. Cortes, Pittsburg State University, Kansas Much has been said about the common fallacy in economic methodology that association is causation. Simply because two variables are found to be statistically correlated does not necessarily imply that they are causally related. A high correlation may reflect a spurious or nonsensical relationship. Some classic examples include the "Super Bowl Predictor" (Stovall, 1988) which contends that when the NFC team wins the Super Bowl, the stock market goes up, and Jevons' theory that sunspots cause the business cycle. In beginning principles and more so in advanced economics courses which require students to formulate and test cause-and-effect relationships, it is also very important to emphasize the causality must be based on sound economic theory. Even if the movements of tow variables are causally related, the direction of causation may be altogether different from what was expected. It is possible that the direction of causality may be reverse or even two-way. With or without getting into a discussion of Granger (1969) causality tests, the instructor will be able to demonstrate the significance as well as the difficulty of inferring causal relationship by asking the class: What variable causes what? (Or alternatively, which one comes first?) (a) advertising and consumption? (b) government spending and income? (c) sunspots and economic activity? (d) the chicken and the egg Possible answers: (a) consumption causes advertising (Ashley, et al, 1980) (b) government spending causes national income (Holmes & Hutton, 1990) (c) economic activity causes sunspots (Sheehan & Grieves, 1982) (d) the egg causes the chicken (Thurman & Fisher, 1988) Graphics |
