List and give examples of the five pitfalls to economic thinking

Question

Please provide the best answer for the statement.

Answer 1

First, bias and preconceptions can cloud economic thinking. An example would be the belief that “the only reason people are unemployed is that they are too lazy to work.” Second, economic terminology in the popular press can be slanted or emotionally loaded. Examples of loaded or slanted terms are “corporate welfare,” “gouging the consumer,” and “exorbitant salaries.” Third, there is the problem of definition of terms. For example, the term “capital” may refer either to “capital goods” or “financial capital.” Fourth, you make a mistake when you assume that what is true for the individual or part of a group is also true for the group as a whole. For example, if an individual stands up to see better at a football game, the individual is better off, but if all the fans stand up to see better, the group is not better off. Fifth, there are two causation fallacies. You might conclude that one event causes the other simply because one preceded the other (the after this, therefore because of this causation): “I washed my car, therefore it rained.” You might also confuse correlation with causation: “incomes rose and the crime rate fell, thus higher incomes reduce the crime rate.”