McConnell Economics, Chapter 2

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Jin+Guice
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McConnell Economics, Chapter 2

Post by Jin+Guice » Sun Dec 01, 2019 10:56 pm

Discussion of the curriculum McConnell, Brue, Flynn Economics text, chapter 2.

ertyu
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Joined: Sun Nov 13, 2016 2:31 am

Re: McConnell Economics, Chapter 2

Post by ertyu » Tue Dec 03, 2019 6:24 pm

This might work better if you wrote out what you think are the salient points of the chapter and also your thoughts about them. This will give people a starting point to discuss and will serve as a reminder if it's been a while since they studied the book, as in my case. I studied this book and got an A in the class way back when, but I don't remember what's in chapter 2 and I've long since decluttered the original textbook. Still, It would be useful for me to participate in this thread.

mathiverse
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Re: McConnell Economics, Chapter 2

Post by mathiverse » Tue Dec 03, 2019 9:48 pm

Chapter 2 defines the "economizing problem" which is figuring out how to use scarce resources in order to provide the maximum utility. The production possibilities model is discussed as a way to understand the opportunity cost of producing one assortment of goods vs another assortment given fixed resources. The circular flow model which describes the flow of economic resources and the flow of money between businesses, households, the resource market, and the product market is also discussed.

Several folks in the forum are planning to read the book at approximately similar paces. That's the reason this thread was created and why a summary isn't necessary. Although I added one here for my own benefit. :)

mathiverse
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Joined: Fri Feb 01, 2019 8:40 pm

Re: McConnell Economics, Chapter 2

Post by mathiverse » Wed Dec 04, 2019 12:26 am

The circular flow model (Figure 2.6 in the 15th edition) reminded me of the "Financial cash flow charts" in section 7.1 of the ERE book. Figure 7.1 in ERE seems to be a simpler variant of the circular flow model. Or perhaps zoomed in versions is a better description. What do you think?

Figure 7.1 from the ERE book
https://imgur.com/a/Y1HVxNl

The model in the book is interesting since it only shows the high level. Really there are a few more lines from Households back to Households where they supply their own labor or from the Resource Market to Households and then Households back to Households where they provide their own goods. There isn't always a business intermediary. In relation to the ERE ideal those additional edges I mentioned might be the only edges an individual household traverses.

Here is a picture of the edges I'm talking about added to a sketch of the textbook diagram.
https://imgur.com/a/MGHmjU9

Here is the textbook diagram.
https://imgur.com/a/AKxeRyB

Side note, if there is a way to post pictures 1) so they are embedded in the post and/or 2) so I don't have to upload them to imgur, then please let me know. Those two things would be preferred, but I couldn't figure it out.

ertyu
Posts: 94
Joined: Sun Nov 13, 2016 2:31 am

Re: McConnell Economics, Chapter 2

Post by ertyu » Wed Dec 04, 2019 5:28 am

The PPC is a neat way to illustrate diminishing returns, I think. It also has a provision where if you decide to sacrifice consumption today and invest in capital goods (machines etc.) instead, you increase your ability to consume at a future point. Quite aligned with the save-and-invest mindset.

The diminishing returns thing: aka, "80% of the benefit comes from 20% of the work". That one is also a truism that can be used to keep things in perspective.

Utility, on the other hand, is a great murky piece of bullshit. The idea that you have limited resources so you'd better think hard about how you want to choose to use them is legit. I guess "utility" can be defined as your subjective criteria for what constitutes a desirable outcome -- which is good in theory but becomes really iffy when you start to model it mathematically. Incidentally, Kahneman got his Nobel for showing that the way economists model utility and decision-making is completely bogus and not at all like how actual people think and behave.

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