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January 22, 2018 

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AGGREGATE MARKET EQUILIBRIUM: The state of equilibrium that exists in the aggregate market when real aggregate expenditures are equal to real production with no imbalances to induce changes in the price level or real production. In other words, the opposing forces of aggregate demand (the buyers) and aggregate supply (the sellers) exactly offset each other. The four macroeconomic sector (household, business, government, and foreign) buyers purchase all of the real production that they seek at the existing price level and business-sector producers sell all of the real production that they have at the existing price level. The aggregate market equilibrium actually comes in two forms: (1) long-run equilibrium, in which all three aggregated markets (product, financial, and resource) are in equilibrium and (2) short-run equilibrium, in which the product and financial markets are in equilibrium, but the resource markets are not.

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FALLACIES:

Logical errors in an argument or evaluation of a policy. The six common fallacies that surface in economic analysis are: false cause, personal attack, division, composition, false authority, and mass appeal. These fallacies are most troublesome because, although false, they seem correct, especially when used by slick-talking, charismatic people (politicians) or when the fallacies support preconceived notions or fundamental beliefs.
Fallacies are the nemesis of scientific inquiry. They typically play on human emotion, ignorance, and prejudice. In contrast, science seeks to uncover the objective facts. Fallacies are commonly committed because people are primarily concerned with achieving a particular goal, regardless of means used.

An Example or Two

Suppose, for example, that Lisa Quirkenstone really, truly believes in reincarnation, ghosts, and life after death. Durwood Frackelmeyer, a distinguished scientist, puts forth an argument as to why these things cannot exist due to an analysis of the amount of mass in the universe, the laws of thermodynamics, and the speed of light.

Lisa, however, remains unconvinced because Durwood wears really ugly plaid slacks and combs several long strands of hair over his obvious bald spot. In so doing, Lisa is committing the logical fallacy of personal attack. Alternatively, if Lisa is convinced of reincarnation, ghosts, and life after death because 90% of the folks responding to a recent survey have similar beliefs, then she is committing the fallacy of mass appeal. In neither case is her conclusion based on whether or not reincarnation, ghosts, and life after death do or do not exist.

Six Common Fallacies

Six fallacies commonly committed in the study of economics are: false cause, personal attack, division, composition, false authority, and mass appeal.
  • False Cause: The logical fallacy of arguing that two events have a causal connection, that is one event causes the other, because they happen at about the same time. It is a fallacy to conclude that just because your dog died during a full moon, that the full moon killed your dog.

  • Personal Attack: The logical fallacy of arguing that something is bad because someone "associated" with the thing is ugly, has a funny nose, drives a foreign car, regularly watches daytime soap operas, or wears outdated clothing. This fallacy is rampant in the political arena. Some politicians promote the notion that only good people propose good policies, while bad people have bad policies. The fact of the matter is that good people propose bad policies and bad people propose good policies.

  • Division: The logical fallacy of arguing that what is true for the whole is also true for the parts. In the study of economics, this takes the form of assuming that what works for the aggregate, or macroeconomy, also works for parts of the economy, such as households or businesses.

  • Composition: The logical fallacy of arguing that what is true for the parts is also true for the whole. In the study of economics, this takes the form of assuming that what works for parts of the economy, such as households or businesses also works for the aggregate, or macroeconomy.

  • False Authority: The logical fallacy of arguing that something is "correct" or "true" because an "expert" in an unrelated area says so. This is commonly used by both advertisers, politicians, and anyone who relies on their Uncle Clyde for the "correct" answers to controversial economic issues. Not that Uncle Clyde is a bad person. He is a really nice man and an excellent barber. But he is just not an expert on economic policies.

  • Mass Appeal: The logical fallacy of arguing that something is "correct" or "true" because a majority of the population thinks so. Once again, this is commonly used by both advertisers and politicians. Just because something is popular, does not mean it is "right." In fact, a cynic might argue that being popular probably makes it "wrong."

The Political Arena

Politicians and government leaders tend to be the primary proponents of fallacies. In the political arena, style often counts for more than substance. The inclination for a politician to charismatically throw out a fallacy or two is strong indeed, as long as it achieves the politicians desired goal, such as getting elected or passing a policy. Finding fallacies in political arguments is usually easier than seeing sand on a beach.

Unfortunately, the consequences of politician-prompted fallacies can be enormous. If Chip Merthington uses a fallacy or two to convince Edgar Millbottom that Millard Fillmore was the greatest baseball player in the history of the game, then what is the harm? Edgar might be deluded and possibly make a fool out of himself during an appearance on Jeopardy. But, by and large, the damage is limited.

However, if a politician gains office or enacts economic policies based on a fallacy or two, then the entire nation can suffer serious damage. Wars, revolutions, depressions, famines, and other catastrophes can turn on the fallacies of politicians. This is SERIOUS business!

<= FACTORYFALLACY OF COMPOSITION =>


Recommended Citation:

FALLACIES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 22, 2018].


Check Out These Related Terms...

     | fallacy of false cause | fallacy of personal attack | fallacy of mass appeal | fallacy of false authority | fallacy of division | fallacy of composition |


Or For A Little Background...

     | scientific method | normative economics | economic science | political views | sixth rule of ignorance | economic goals |


And For Further Study...

     | seven economic rules | government functions | scarcity | conservative | liberal | economic thinking | world view | cause and effect |


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