Hello Economics!

(“the dismal science”) Thomas Carlyle

Scarcity & Choice

• Underlines EVERYTHING in Economics

• Property resources are limited, therefore scarce.

• Wants are limitless• We have to chose,

and Ration our resources http://www.youtube.com/watch?v=yoVc_S_

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Economics:

• the study of how society uses its scarce resources.

• The study of people’s behavior in the production, distribution and consumption of scarce goods

Economics:

• The science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.

How do people make choices?

• In economics, people are rational beings.  Meaning, people make logical choices. 

How do people make choices?

• If a person has to choose between two alternatives, it is only logical that he choose the better one. 

• People always choose the option that will give maximum utility (or in layman’s term – happiness).

Scarcity & Choice: Underlines EVERYTHING in Economics

Information Guides Decisions

Information can be explained with words: • “If you were Bella who would you choose Edward or Jacob?? WHY?? I

wouldn't Know Edward is all romantic but he is to protective and Jake cares about u, is fun to be with, and lets you have freedom. so me prob. jake:) what about you??”

• Some people will answer "Edward because he's hot." but for me I chose Edward even though he is a vampire, like a human he still commits certain flaws like being too over protective but nevertheless, he still has many sweet and romantic things to give that can cover his overprotectiveness. and that's why I chose Edward. >))

• i would pick jacob. here's why. edward is a really sweet guy but i would get bored really fast if i dated a guy like him. i did actually date a guy like edward for a while. and after a while i got bored as heck. all the things he would do like buy me gifts, hang out with me, get  jealous very easily were all romantic in the beginning but after a while i got bored with him doing all that stuff and he didn't want to back off. his big mistake was telling me loves me after we only dated for less than a month!!! so i dumped him towards end of semester =(.

• jake seems like a guy i would never get tired of seeing or talking to. but i havent met anybody in real life who i can compare him with yet. i can think of a few but they would be bad examples lol.

Information Guides Decisions Information can be explained with Graphs

After reading everyone’s bogs, Face book pages and Tweets, we came up with these results

*Completely made up data

Mutant Boyfriend

Choice:

Edward Jacob

‘People

Obsessed with Twilight’s choices:

35,905* 45,897*

Information Guides Decisions

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

Edward

Jacob

• Graphs convey information at a glance so we don’t have to read all the words.

*Completely made up data

Information Guides DecisionsEveryone Loves Pies

• Pies are the best because in an instant you understand the comparison.

Edward

Jacob

*Completely made up data

Economics:• Economics is

the social science that examines how people choose to use limited or scarce resources in attempting to satisfy their unlimited wants

Water: Scarce Resource in Arabian Peninsular

The concept of scarcity

A resource is considered scarce when its availability is not enough to meet its demand.

De Beers stockpiles diamondsand releases a limited number each year just to keep prices up. (De Beers controls about two thirds of the entire world market).

“there is no free lunch”?

• If one individual or group gets something at no cost, somebody else ends up paying for it. If there appears to be no direct cost to any single individual, there is a cost to society.

http://www.youtube.com/watch?v=ZN6mp2NjMhs

rational self-interest

• most economists have begun from an assumption few modern psychologists would endorse.

• The assumption is that human beings are highly rational and self-interested.

Marginal benefit

• The additional satisfaction, or utility, that a person receives from consuming an additional unit of a good or service.

marginal cost

• The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. 

• MC = dy TC

dx Q

Total cost curve

marginal cost

Trade Off:

• a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect.

***Opportunity Cost****

• The cost of an alternative that must be forgone in order to pursue a certain action.

Example: The opportunity cost of going to college is the money you would have earned if you worked instead.

Opportunity Cost of the fabulous shoes are the equally amazing boots you could have bought instead

understanding economics is important for good citizenship

• Economics impacts every aspect of our lives, from what we eat, to how we dress, to where we live.

• Economics might be complicated, but it has everything to do with you.

$61,990; 8.6 mpg

The five fundamental questions any economy must answer

• What will be produced?

• How will goods and services be produced?

• Who will get the output?

• How will the system accommodate change?

• How will the system promote progress?

Pure Capitalism:

• All the means of production is privately held and government does not tax, regulate or provide subsidies. Demand decides what will be produced, and also who gets the produced goods.

Communism or Command Economy:

• An economy where supply and price are regulated by the government rather than market forces.

• Government planners decide which goods and services are produced and how they are distributed.

Command Economy• the means of production are publicly owned and

economic activity is controlled by a central authority

Command All economic & political power in the hands of rulers

Mixed Economy: (what USA is)

• an economic system that incorporates aspects of more than one economic system.

• This usually means an economy that contains both privately owned means of production that are taxed, regulated & subsidized by the government. 

Traditional Economy:

• A traditional economy is an economy based on custom and tradition. The economic system in which resources are allocated by inheritance, has a strong social network and is based on indigenous technology and methods.

Traditional Economy:

• No currency• Trade goods/services

for goods/services.• Economic decisions

based on tradition (gender role, religion, class/caste)

Traditional Economies

• indigenous people and poorer parts of the world still exercise a traditional economy today.

Inuit Indians of Northern Canada

Descriptive Economics

• (or Positive Economics): branch of economic inquiry that analyzes and explains economic phenomena as they are, without making any statements about how they ought-to be.

Policy Economics (Normative):

• A perspective on economics that incorporates subjectivity within its analyses. It is the study or presentation of "what ought to be" rather than what actually is.

“Other things being equal assumption” (ceteris paribus)

• assume all other variables except those under immediate consideration are held constant.

• It allows us to describe how markets behave

Macroeconomics:

The branch of economics that analyzes the market behavior of the entire economy.

It is concerned with the interaction between buyers (Demand) and sellers (Supply).

Microeconomics:

The study of the ‘economic units’ (households, firms) that together make an economic system.

Both Households & firms are Demanders and Suppliers.

the eight economic goals: (avoid this)

#1

• Economic Growth [Increase in Real GDP or per capita GDP] 

# 2

Full Employment

# 3

• Economic Efficiency – “obtaining the maximum output from available resources” 

#4

Price Level Stability – sizable inflation or deflation should be avoided.

zimbabwean currency

#5

An Equitable Distribution of Income. One group shouldn’t have extreme luxury while another is in stark poverty.

Great Britain

#6

   Economic Freedom: business, workers and consumers have freedom to sell, make and consume.

#7

Economic Security – provision should be made for those not able to take care of themselves – handicapped, disabled, old age, chronically ill, orphans.

#8

• Balance of Trade: exports equal imports

Japan maintains a favorable balance of trade by restricting the amount of products imported into the country.

What problems may be associated with achieving these goals

Which Goals go together? Which Conflict?

1. Economic Growth: Overuse of resources: environment is depleted

2. Full Employment: Employers cannot find skilled/reliable workers (but Economic Growth #1 can be achieved)

3. Economic Efficiency: Local jobs are outsourced

4. Price Level Stability: Government control of currency value leads to currency bubble

What problems may be associated with achieving these goals

5. An Equitable Distribution of Income: no incentive to take risks and create new inventions

6. Economic Freedom: Social problems created by demand (but Efficiency #3 is achieved)

7. Economic Security: individuals/ethnic groups become dependent and live at the poverty level. (but Equitable Distribution of Income #5 is achieved)

What problems may be associated with achieving these goals

8. Balance of trade: If imports are controlled by governments can lead to inferior products available for consumer.

pitfalls to objective economic thinking: Bias

• Selection bias: there is an error in choosing the individuals or groups to take part in a scientific study.

• Bias of an estimator is the difference between this estimator's expected value and the true value of the parameter being estimated.

Normative Statements

• express an opinion about what ought to be.

• They are subjective statements rather than objective statements and reflect a person’s values about society.

Positive Statements

objective statements that can be tested or rejected by referring to the available evidence (i.e. facts).

In this chart it IS true the amount the top earners tax increased, so Positive Statements can be skewed and be biased too.What about other incomeLevels?

http://taxfoundation.org/sites/taxfoundation.org/files/UserFiles/Image/Fiscal%20Facts/tax-cut-families-table1(1).jpg

pitfalls to objective economic thinking:Loaded Terminology:

• wording that attempts to influence the listener or reader by appealing to emotion

• Barack Hussein Obama

pitfalls to objective economic thinking:Fallacy of Composition:

• when one infers that something is true of the whole from the fact that it is true of some part of the whole.

The Catholic Church did not support

Hitler, although some priests did.

pitfalls to objective economic thinking:Post Hoc Fallacy:

• simply because one thing happens after another, the first event was a cause of the second event.

Not all Economists Think alike• Economists

disagree. • They disagree over

policy, prediction, and matters of pure theory.

• They even disagree over why they disagree.