introdution to economics
TRANSCRIPT
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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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How Peole Make Decisions
• 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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How Peole Make Decisions
• 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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How the Economy works as a
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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How the Economy works as a
Whole• Princile @K - ;he #eneral level of rices
rises when the #overnment rints and
distri$utes too much money - Definition of money, and economic lan#ua#e
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How the Economy works as a
Whole• Princile @K - ;he #eneral level of rices
rises when the #overnment rints and
distri$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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How the Economy works as a
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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How the Economy works as a
Whole• Princile @A( - 2ociety faces a shortBrun
tradeoff $etween inflation and
unemloyment - !ounterBcyclical sta$iliation versus roB
cyclical desta$iliation
- Political $usiness cycles