Ch 2. Thinking Like an Economist

.title[
# Ch 2. Thinking Like an Economist
]
.subtitle[
## Microeconomics I
]
.author[
### Lyuben Ivanov, PhD
]
.institute[
### Sofia University St Kliment Ohridski
]
.date[
### Fall Term, 2025/2026
]

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<hr>

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# Nobel Memorial Prize 2025

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025 was awarded **for having explained innovation-driven economic growth** with one half to Joel Mokyr **for having identified the prerequisites for sustained growth through technological progress** and the other half jointly to Philippe Aghion and Peter Howitt **for the theory of sustained growth through creative destruction**

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# Nobel Memorial Prize 2025: Joel Mokyr

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# Co-recipient 2025: Philippe Ahgion

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# Co-recipient 2025: Peter Howitt

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class: clear, middle, no-scribble
  
  .font200[
<strong>  The Economist As Scientist</strong>
]
<hr>

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# The European Economic Association

The European Economic Association (EEA) is an International
**scientific** body that promotes the development of **economic
science** throughout Europe, as well as communication between
teachers, **researchers** and students, the links between university
and **research centers** and relations between theoretical economists
and policy-oriented economists.

---

# <span style="font-size: 100%; position: relative; top: -75px;">The Journal of the European Economic Association (JEEA)</span>

The Journal of the European Economic Association (JEEA) is a
general-interest journal in economics, established in 2003. JEEA
carries only articles of the highest <b>scientific quality</b>. It is an
outlet for theoretical and empirical work with global relevance.
JEEA is committed to promoting the ambitions of the EEA, the
<b>development and application of economics as a science</b>, as
well as the communication and exchange between teachers,
<b>researchers</b> and students in economics.

</div>

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  .font200[
<strong>  A Tale Of Two Cities</strong>
]
<hr>

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# The Holistic Approach

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"</td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">It is able
to provide answers to much bigger questions but the quality of
the answers is very dependent on the person doing the analysis.</td>
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top;"><i class="fa fa-balance-scale"</td>
    <td> </td>
    <td style="text-align: left; vertical-align: top;"> Allows the analytical part of our brains to be enhanced by
the synthesis and intuition of the subconscious but is prone to many
psychological biases. </td>
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top;"><i class="fa fa-balance-scale"</td>
    <td> </td>
    <td style="text-align: left; vertical-align: top;"> It requires significant investment in
collecting various types and sources of information as well as
significant cognitive capacity. </td>
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top;"><i class="fa fa-balance-scale"</td>
    <td> </td>
    <td style="text-align: left; vertical-align: top;"> In investment, Warren Buﬀett and Charles Munger were very
successful due to their application of the holistic approach (16% CAGR from 1987 to 2018). </td>
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top;"><i class="fa fa-balance-scale"</td>
    <td> </td>
    <td style="text-align: left; vertical-align: top;"> In governance, Lee Kuan Yew was also very successful. </td>
  </tr>
</table>

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# The Scientific Approach

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">It is more reliable and objective than the holistic approach but
requires significant investment in learning how to apply the
scientific method as well as significant eﬀort to collect data
and analyse it.</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">It allows limited human cognition to be enhanced by the
use of data-processing technologies and formally developed
methods that avoid many psychological biases.</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">In the social sciences currently is
successfully applied to answer relatively small and very specific
questions.</td>
  </tr>
</table>
<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">In investment, Jim Simons was very successful due to his
application of the scientific method (66% CAGR from
1987 to 2018).</td>
  </tr>
</table>

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# $1 At CAGR=16% Versus CAGR=66%

<img src="2_files/figure-html/unnamed-chunk-4-1.svg" style="display: block; margin: auto;" />
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  .font200[
<strong>  Appendix</strong>
]
<hr>

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# Facility Index: 0% (0/9)

<div class="container">
    <div class="question">
        <p>The production possibilities frontier is bowed outward if</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceA1" value="A">
        <label class="form-check-label" for="choiceA1">
            the amount of resources increases.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceB1" value="B">
        <label class="form-check-label" for="choiceB1">
            the level of technology increases.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceC1" value="C">
        <label class="form-check-label" for="choiceC1">
            resources are not perfectly shiftable.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceD1" value="D">
        <label class="form-check-label" for="choiceD1">
            There are two correct answers.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result1', 'choice1')">Submit</button>
    <div class="result" id="result1"></div>
  </div>

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# Facility Index: 0% (0/2)

<div class="container">
    <div class="question">
        <p>Almost all economists agree that rent control</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceA2" value="A">
        <label class="form-check-label" for="choiceA2">
            allows the market for housing to work more efficiently.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceB2" value="B">
        <label class="form-check-label" for="choiceB2">
            adversely affects the availability and quality of housing.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceC2" value="C">
        <label class="form-check-label" for="choiceC2">
            is a very inexpensive way to help the most needy members of society.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceD2" value="D">
        <label class="form-check-label" for="choiceD2">
            improves the availability and quality of housing.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result2', 'choice2')">Submit</button>
    <div class="result" id="result2"></div>
  </div>

---

# Facility Index: 9.09% (1/11)

<div class="container">
    <div class="question">
        <p>The US Congress relies on economists at the Congressional Budget Office to</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceA3" value="A">
        <label class="form-check-label" for="choiceA3">
            enforce the nation’s antitrust laws.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceB3" value="B">
        <label class="form-check-label" for="choiceB3">
            analyze economic developments in the United States.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceC3" value="C">
        <label class="form-check-label" for="choiceC3">
            set the nation’s monetary policy.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceD3" value="D">
        <label class="form-check-label" for="choiceD3">
            obtain independent evaluations of policy proposals.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('D', 'result3', 'choice3')">Submit</button>
    <div class="result" id="result3"></div>
  </div>

---

# Facility Index: 14.29% (1/7)

</div>
]

<div class="container">
    <div class="question">
        <p>In the production possibilities frontier shown, the movement from point C to point D was most likely caused by</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceA4" value="A">
        <label class="form-check-label" for="choiceA4">
            unemployment.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceB4" value="B">
        <label class="form-check-label" for="choiceB4">
            fewer resources available for production.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceC4" value="C">
        <label class="form-check-label" for="choiceC4">
            a decrease in society's preference for bananas.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceD4" value="D">
        <label class="form-check-label" for="choiceD4">
            natural disaster.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('A', 'result4', 'choice4')">Submit</button>
    <div class="result" id="result4"></div>
  </div>

]

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# Facility Index: 20% (2/10)

<div class="container">
    <div class="question">
        <p>In the circular-flow diagram, money spent by households</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceA5" value="A">
        <label class="form-check-label" for="choiceA5">
            is used to purchase factors of production.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceB5" value="B">
        <label class="form-check-label" for="choiceB5">
            cannot be tracked in the diagram.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceC5" value="C">
        <label class="form-check-label" for="choiceC5">
            is earned from the factors of production they provide to firms.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceD5" value="D">
        <label class="form-check-label" for="choiceD5">
            becomes profit to firms.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result5', 'choice5')">Submit</button>
    <div class="result" id="result5"></div>
  </div>

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# Facility Index: 25% (1/4)

<div class="container">
    <div class="question">
        <p>Production possibilities frontiers can shift outward if</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceA6" value="A">
        <label class="form-check-label" for="choiceA6">
            government increases the amount of money in the economy.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceB6" value="B">
        <label class="form-check-label" for="choiceB6">
            there is an increase in technology.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceC6" value="C">
        <label class="form-check-label" for="choiceC6">
            resources can be moved from the production of one good to another.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceD6" value="D">
        <label class="form-check-label" for="choiceD6">
            There are two correct answers.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result6', 'choice6')">Submit</button>
    <div class="result" id="result6"></div>
  </div>

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# Facility Index: 27.27% (3/11)

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 50 units of food and 30 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 55 units of food and 30 machines.

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# Facility Index: 27.27% (3/11)

<div class="container">
    <div class="question">
        <p>Which of the following statements is true?</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceA7" value="A">
        <label class="form-check-label" for="choiceA7">
            Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 30.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceB7" value="B">
        <label class="form-check-label" for="choiceB7">
            Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceC7" value="C">
        <label class="form-check-label" for="choiceC7">
            In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceD7" value="D">
        <label class="form-check-label" for="choiceD7">
            The technological advance reduced the amount of resources needed to produce 30 machines. These resources could be used to produce more food.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('D', 'result7', 'choice7')">Submit</button>
    <div class="result" id="result7"></div>
  </div>

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# Questions?

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</body>
</html>

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# Thank You!

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