ECO 1102 Lecture Notes - Lecture 2: John Maynard Keynes, Market Failure, Econometrics

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: Najib Khan

Document Summary

Rational economic choices lead to efficient outcomes. Hence, the markets are the source of effi(cid:272)ie(cid:374)(cid:272)y, a(cid:374)d should (cid:271)e left free of a(cid:374)y i(cid:374)terfere(cid:374)(cid:272)e, (cid:858)laissez-faire(cid:859). Externality and market failure: self-interest centered behavior is prone to externalities, and if left unregulated, it may lead to the market failure. The great depression vs the great recession. Positive economic theory analyzes how rational economic agents make trade-offs (choices and decisio(cid:374)s(cid:895). It is the study of (cid:858)(cid:449)hat is(cid:859) or (cid:858)(cid:449)hat (cid:449)ill (cid:271)e (cid:894)predi(cid:272)tio(cid:374)(cid:895)(cid:859). Positive economics is concerned with efficiency, and can be tested using the observational data (econometrics). Nor(cid:373)ati(cid:448)e e(cid:272)o(cid:374)o(cid:373)i(cid:272) theory, o(cid:374) the other ha(cid:374)d, is the study of (cid:858)(cid:449)hat should (cid:271)e(cid:859), or ho(cid:449) the agents should make trade-offs (choices and decisions). Normative economics is concerned with equity and fairness. However, it is often very difficult to test it using observational data. While microeconomics focuses on the behaviour of individual economic agents and markets,