Introdution to Economics (New)

8/11/2019 Introdution to Economics (New)

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Introduction to Economics

D.W. Hedrick


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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 optionalcomprehensive final (replaces lowest

midterm)NO MAKEUPS GIVEN


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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.

Wikipedia's perspective
http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economics


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Economics as a Science The Scientific Method

Observation Hypothesis Testing

Observation: identifying and measuring important variablesorderly loss of information

Hypothesis: educated guesses about cause and effect with the

variables 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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MankiwsTen Principles of

Economic Thinking


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How People Make Decisions

Principle #1 - People face tradeoffs

Time allocationan example of tradeoffs

Production Possibilities Frontier

Efficiency versus equity


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Principle #2 - The cost of something is what

you have to give up to get it

Opportunity costs come from Von Weiser, aGerman economist late 1800s

Opportunity costs are independent of monetary

unitsTINSTAAFL

The real costs of going to college


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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 #4People 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 everybodybetter off

Adam Smith author of the An Inquiry into the

Causes and Consequences of the Wealth ofNations 1776

Gains from the division of labor andspecialization

Mercantilists perspectives

Example of why Ellensburgians should tradewith others


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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 #7 Governments can sometimes

improve market outcomes

Market signals can fail to allocate resourcesefficiently or equitably

Public goods, the exclusion principle, the free-

rider problem and non-rival consumptionExternal 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 # 8A countrys standard of living

depends upon its ability to produce goods andservices

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

Materialismmore 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 # 8A countrys standard of

living depends upon its ability to produce

goods and servicesleisure time and productivity

the factors of production: land or natural

resources, labor, capital, entrepreneurshiptechnology and productivity

the Rule of 72 and growth rates


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Whole Principle #9The general level of prices

rises when the government prints and

distributes too much moneyDefinition of money, and economic language


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Whole Principle #9The 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 #10Society faces a short-run

tradeoff between inflation and

unemploymentCounter-cyclical stabilization versus pro-

cyclical destabilization

Political business cycles

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