Introdution to Economcis

8/6/2019 Introdution to Economcis

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Introduction to Economics

D.W. Hedrick

Fall 2006


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Instructional Method Primarily Lecture format with discussion,

simulations, and video presentations

Constructive discussion is welcomed

Grading is based on Aplia Homeworks

(20%), five of seven quizzes (20%), three

midterms (20% each), and an optional

comprehensive final (replaces lowest

midterm) NO MAKEUPS GIVEN


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Instructional Method Suggestions for the study of economics

Read the book before coming to class

Recopy lectures and reread the book withinseveral hours of class

Identify what you dont understand

Ask questions in class

Use the study guide

Go to supplemental instruction

Visit the professor


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Definition of Economics Mankiws definition

How Society manages its scarce resources

Hedricks definition

How society chooses to allocate its scarce resources

among competing demands to best satisfy human wants

Alternative definitions

Economics is the study of choice.

Economics is what economist do.


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Scarcity and the Fundamental

Questions of Economics Scarcity : Unlimited wants versus limited

resources

Choices and tradeoffs

Opportunity Costs

All societies must answer the WHFM questions

What is to be produced? How is to be produced?

For whom will it be produced?


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Economics as a Science The scientific method Observation Hypothesis Testing

Observation: identifying and measuring important variables orderly loss of information

Hypothesis: educated quesses about cause and effect with thevariables

Theories

Models: realism or usefulness

Testing: theories cant be proven and are supported by repeatedfailed attempts to disprove them.

Microeconomics vs. Macroeconomics

The assumption of rational behavior Max TNB = TB TC

Boxes Example

MB=MC rule

People respond to incentives

Limits to the use of rational behavior (e.g. axe murders)


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Microeconomics versus Macroeconomics

Normative vs. positive approaches

A brief history of economic thinking

The language of economics


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The Ten principles of Economic

Thinking


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Categories of Basic Principles of

Economics How people make decisions?

How people interact?

How does the economy work overall?


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How People Make Decisions Principle #1 - People face tradeoffs

Time allocation an example of tradeoffs

Efficiency versus equity

Production Possibilities Frontier


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How People Make Decisions Principle #2 - The cost of something is what

you have to give up to get it

Opportunity costs come from Von Weiser, a

German economist late 1800s

Opportunity costs are independent of monetary

units TINSTAAFL

The real costs of going to college


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How People Make Decisions Principle #3 - Rational people think at the

margin

Rational or irrational decision-making

Marginal benefits and costs versus total benefits

and costs

Weighing marginal costs and benefits leads tomaximizing net benefits (total welfare) *


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How People Make Decisions Principle #4 People respond to incentives

Reactions to changes in marginal benefits and costs

Increases (decreases) in marginal benefits mean more

(less) of an activity

Increases (decreases) in marginal costs mean less

(more) of an activity

Example of seat belts leading to increased speeds

Example of SUV (with child car seat) in Issaquah


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How People Interact Principle #5 - Trade can make everybody

better off

Adam Smith author of the An Inquiry into theCauses and Consequences of the Wealth ofNations 1776

Gains from the division of labor andspecialization

Mercantilists perspectives

Example of why Ellensburg


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How People Interact

Principle #6 - Markets are usually a good

way of organizing economic activity

Feudal times and haciendas in the new world The power of trade: cooperation versus conflict

Markets: prices and quantities traded, typical

and abstract


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How People Interact Principle #6 - Markets are usually a good

way of organizing economic activity

creativity and productivity and resource

allocation

Failure of centrally planned economies

set it and forget it becomes compete or beobsolete


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How People Interact Principle #7 Governments can sometimes

improve market outcomes

Market signals can fail to allocate resources

efficiently or equitably

Public goods, the exclusion principle, the free-

rider problem and non-rival consumption External costs and benefits

Examples: vaccines, education, pollution


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How People Interact Principle #7 Governments can sometimes

improve market outcomes

Equitable or fair distribution of resources

Efficiency and equity: the pie analogy

Government Failure: is government

intervention always the proper solution?


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How the Economy works as a

Whole Principle # 8 A countrys standard of living

depends upon its ability to produce goods and

services Adam Smiths An Inquiry into the Nature and theConsequences of the Wealth of Nations

Materialism more toys mean more welfare

wealth: a necessary or sufficient condition for

happiness (are rich people happier, children with lots oftoys)


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Whole Principle # 8 A countrys standard of

living depends upon its ability to produce

goods and services

leisure time and productivity

the factors of production: land or natural

resources, labor, capital, entrepreneurship technology and productivity

the rule of 72 for growth rates


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Whole Principle #9 The general level of prices

rises when the government prints and

distributes too much money

Definition of money, and economic language


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Whole Principle #9 The general level of prices

rises when the government prints and

distributes too much money

Examples: Not worth a continental and

Argentina

Establish of the Federal Reserve and theintroduction of sustained inflation in the US


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Whole Principle #10 Society faces a short-run

tradeoff between inflation and

unemployment

Short-run and the long-run

Demand and supply shocks

Short-run increases (decreases) in output above(below) long-run potential output lead to

adjustments


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Whole Principle #10 Society faces a short-run

tradeoff between inflation and

unemployment

Counter-cyclical stabilization versus pro-

cyclical destabilization

Political business cycles

Documents

Introdution to Economcis