Introduction to Introduction to Economics. The Nature and Method of Economics. Lecture 1 Beata Łopaciuk-Gonczaryk

2 Introduction Office hours: Monday am, room Required Textbook: C.R. McConnell and S.L. Brue, Economics Additional reading: The Economist R. Frank: The Economic Naturalist

3 Introduction Course Grade: –Final exam 90% Written exam: multiple choice and open questions –Discusssion / short presentations 10% Grades: –90–1005 – – – –50-593

4 Introduction Short presentations (5%): –15 minutes –on the basis of article found in economic newspaper (eg. Economist, Financial Times) or in scientific magazine (not only economic - interdisciplinary presentations are welcome) –introduction to issues presented at the class or an illustration/comment of issues presented at the last class –topic/article proposition to be accepted in at least one-week advance –eg. behavior assumptions and economic Nobel prize winners – Becker (using rational assumptions to non economic areas) or Kahneman (showing flaws in rational assumptions regarding human behavior) – introduction to the 3 rd lecture

5 Course outline: 1.Nature and Method of Economics 2.Economics as Social Science & Principles of Economic Methodology 3.Consumer behavior and utility maximization 4.The Economizing Problem 5.Economic Systems 6.Individual Markets. Demand and Supply 7.Government and Market Failure

6 Course outline: 8.Macroeconomics - Basic Concepts 9.Introduction to Economic Growth 10.Money, Banking and Financial Market 11.International Economics and World Economy (at least 2 classes) 12. The Economics of Developing Countries 13. Transition Economies

7 Outline of Lecture 1 The Economic Perspective –Scarcity and Choice –Rational Behaviour –Benefits and Costs Why Study Economics?

8 Definition of Economics Economics is the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.

9 Definition of Economics Economics allows to answer very important questions: – What to produce? – How to produce? – For whom?

10 Definition of Economics Origins of the term: Directly from Old French word economie meaning “management of a household” Adopted from Latin word oeconomia and Greek word oikonomia (Oikos meaning house and –nomos meaning managing)

11 SCARCITY & CHOICE We „can’t have it all” – decision what we will have and what we must forgo “There is no free lunch” alternative use of resources: land, capital, labor opportunity costs – to get more of one thing you forgo opportunity of getting something else The Economics Perspective

12 Let’s imagine, that you are going to football match next Saturday evening, you have already bought the tickets and cannot resell it. On this Saturday evening, there is also a rock concert that you are interested in. The ticket for the concert costs 40$ but you value this concert as much as 50$. What is the opportunity cost of going to football match? a)price of football match’s ticket b)40$ c)50$ d)10$ Opportunity cost

13 RATIONAL BEHAVIOR Pursuing opportunities to increase utility UTILITY “Pleasure, happiness, satisfaction” Individuals weigh costs and benefits – their decisions are „rational” (not „random”) The Economics Perspective

RATIONAL BEHAVIOR Different choices under different circumstances Different choices made by different people (different preferences) self-interest ≠ selfishness helping family contributing to charities The Economics Perspective

15 The Economics Perspective MARGINAL ANALYSIS Marginal Benefits & Marginal Costs Choices involve changes in the status quo “Marginal” means “extra”, “additional” or “a change in” EQUILIBRIUM: marginal benefits=marginal costs For example: Should you study an extra hour for an exam? Should government increase or decrease funding for education?

16 Most of the ideologies of the modern world have been shaped by prominent economists of the past: Adam Smith David Ricardo John Stuart Mill Karl Marx John Maynard Keynes plus many modern contributors... For example, the president of United States benefits from the recommendations of his Council of Economic Advisors Why Study Economics

17 Why Study Economics Economics for Citizenship Most of today’s political problems have important economic aspects. For example: What level of taxes should we have? How can we reduce poverty?

18 Why Study Economics Professional & Personal Applications Improvement of analytical tools necessary for business and personal needs. For example: Is it more economical to buy or lease a car? Last but not least: studying economics as an investment

19 Lecture 2 Economic Methodology Economics and Other Sciences, Theoretical Economics and Policy Economics, Macroeconomics and Microeconomics Positive and Normative Economics