Exam 1: Introduction

When economists assume that people are rational,they are assuming that people generally agree what is good for human beings.

Positive economics can tell us which policies are efficient and which are not.

If two individuals voluntarily agree to a transaction that only affects them (and no one else),it must be that the transaction is efficient.

When economists say that policy A is more efficient than policy B,they mean policy A is better than policy B.

To say that one policy is better than another because it is more efficient is a normative,not a positive,statement.

If medical patients are rational (in the way economists think of the term),they will do what medical experts believe is best for them.

One of the aims of positive economics is to rank policies under consideration from most desirable to least desirable.

A spontaneous order emerges from individual decisions that cause something to "work" without anyone planning for it to "work".

Economists talk about tradeoffs a lot because they have come to understand that whenever there is a winner from a policy or transaction,there must also be a loser.

Suppose two models give the same predictions --- but one is simplistic and unrealistic in its assumptions while the other is rich in detail and resembles the real world more closely.If the sole goal of the economist is to predict,then the economist should use the simple and unrealistic model.