introdution to economics

8/15/2019 Introdution to Economics

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Introduction to Economics

D.W. Hedrick


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Instructional Method

• Primarily Lecture format with discussion,

simulations, and video resentations

• !onstructive discussion is welcomed

• "radin# is $ased on %lia Homeworks

&'()*, five of seven +uies &'()*, three

midterms &'() each*, and an otionalcomrehensive final &relaces lowest

midterm* - / M%0E1P2 "I3E


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Instructional Method

• 2u##estions for the study of economics - 4ead the $ook $efore comin# to class

- 4ecoy lectures and reread the $ook withinseveral hours of class

- Identify what you don5t understand• %sk +uestions in class

• 1se the %lia and the study #uide &otional*

• "o to tutors in sulemental instruction &if offered*

• 3isit the rofessor durin# office hours


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Definition of Economics

• Mankiw5s definition

- How 2ociety mana#es its scarce resources

• Hedrick5s definition - How society chooses to allocate its scarce resources

amon# cometin# demands to $est satisfy human wants

• %lternative definitions

- Economics is the study of choice.

- Economics is what economist do.

- Wikiedia6s ersective

http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economics


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2carcity and the 7undamental

8uestions of Economics• 2carcity 9 1nlimited wants versus limited

resources

• !hoices and tradeoffs• /ortunity !osts

• %ll societies must answer the WH7M +uestions

- What is to $e roduced: - How is to $e roduced:

- 7or whom will it $e roduced:


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Economics as a 2cience• ;he 2cientific Method

- /$servation es E>amle

- M=?M! rule - Peole resond to incentives - Limits to the use of rational $ehavior &e.#. a>e murders*


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• Microeconomics versus macroeconomics

• ormative vs. ositive aroaches

• % $rief history of economic thinkin#

• ;he lan#ua#e of economics


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Mankiw5s;en Princiles of

Economic ;hinkin#


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!ate#ories of =asic Princiles of

Economics• How eole make decisions:

• How eole interact:

• How does the economy work overall:


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How Peole Make Decisions

• Princile @A B Peole face tradeoffs

- ;ime allocation - an e>amle of tradeoffs

- Production Possi$ilities 7rontier

- Efficiency versus e+uity


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• Princile @' B ;he cost of somethin# is what

you have to #ive u to #et it

- /ortunity costs come from 3on Weiser, a

"erman economist late AC((s

- /ortunity costs are indeendent of monetary

units - ;I2;%%7L

- ;he real costs of #oin# to colle#e


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• Princile @ B 4ational eole think at the

mar#in

- 4ational or irrational decisionBmakin#

- Mar#inal $enefits and costs versus total $enefits

and costs

- Wei#hin# mar#inal costs and $enefits leads toma>imiin# net $enefits &total welfare*


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How Peole Make Decisions• Princile @ -Peole resond to incentives

- 4eactions to chan#es in mar#inal $enefits and costs

- Increases &decreases* in mar#inal $enefits mean more

&less* of an activity - Increases &decreases* in mar#inal costs mean less

&more* of an activity

- E>amle of seat $elts leadin# to increased seeds

- E>amle of 213 &with child car seat* in Issa+uah


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How Peole Interact

• Princile @F B ;rade can make every$ody $etter off - %dam 2mith author of the G%n In+uiry into the

!auses and !onse+uences of the Wealth of ations AJ

- "ains from the division of la$or and secialiation

- Mercantilists ersectives

- E>amle of why Ellens$ur#ians should trade withothers


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How Peole Interact

• Princile @J B Markets are usually a #ood

way of or#aniin# economic activity

- 7eudal times and haciendas in the new world

- ;he ower of trade9 cooeration versus conflict

- Markets9 rices and +uantities traded, tyical

and a$stract


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How Peole Interact

• Princile @ "overnments can sometimes

imrove market outcomes

- Market si#nals can fail to allocate resourcesefficiently or e+uita$ly

- Pu$lic #oods, the e>clusion rincile, the freeB

rider ro$lem and nonBrival consumtion - E>ternal costs and $enefits

- E>amles9 vaccines, education, ollution


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How Peole Interact

• Princile @ "overnments can sometimes

imrove market outcomes

- E+uita$le or fair distri$ution of resources

- Efficiency and e+uity9 the ie analo#y

- "overnment 7ailure9 is #overnment

intervention always the roer solution:


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How the Economy works as a

Whole• Princile @ C - % country5s standard of livin#

deends uon its a$ility to roduce #oods andservices - %dam 2mith5s G%n In+uiry into the ature and the

!onse+uences of the Wealth of ations

- Materialism - more toys mean more welfare

- wealth9 a necessary or sufficient condition for

hainess &are rich eole haier, children with lots oftoys*


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Whole• Princile @ C - % country5s standard of

livin# deends uon its a$ility to roduce

#oods and services - leisure time and roductivity

- the factors of roduction9 land or natural

resources, la$or, caital, entrereneurshi - technolo#y and roductivity

- the 4ule of ' and #rowth rates


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Whole• Princile @K - ;he #eneral level of rices

rises when the #overnment rints and

distri$utes too much money - Definition of money, and economic lan#ua#e


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Whole• Princile @K - ;he #eneral level of rices

rises when the #overnment rints and

distri$utes too much money - E>amles9 Got worth a continental and

%r#entina

- Esta$lish of the 7ederal 4eserve and theintroduction of sustained inflation in the 12


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Whole• Princile @A( - 2ociety faces a shortBrun

tradeoff $etween inflation and

unemloyment - 2hortBrun and the lon#Brun

- Demand and suly shocks

- 2hortBrun increases &decreases* in outut a$ove&$elow* lon#Brun otential outut lead to

adustments


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Whole• Princile @A( - 2ociety faces a shortBrun

tradeoff $etween inflation and

unemloyment - !ounterBcyclical sta$iliation versus roB

cyclical desta$iliation

- Political $usiness cycles

introdution to economics

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