Welcome to PMBA0608: Economics/Statistics Foundation Fall 2006 Sessions 1 August 25

Session 1: August 25 Introduction  A little about me  A little about you Family Job Undergrad degree Etc.

Personal Index Cards 1.Name 2.Address 3. 4.Employment Information  What do you do? 5.Undergrad degree  Major  Year 6.Phone numbers (please list at least 2) 7.A screen name for your grade

You have received the course contract as an attachment  Did you read it?  Any questions?  My website:  My

My teaching philosophy 1.Assumptions  Students can read and understand a lot on their own.  Different students have different learning styles.  Sitting through 3 hours of lecture is boring and ineffective for most students.  Are these assumptions right?

My teaching philosophy 2. My job  Is not to transmit knowledge to you.  Is to design the map that leads you toward constructing your own knowledge.  Is to help you figure out how to ask the right questions when you feel lost.  Is to ask you questions in an attempt to find out if you are on the right track.  Is to give clear and meaningful answers to your questions.  Is this job description acceptable to you?

My teaching Philosophy 3. Your job  Is not to absorb the transmitted knowledge like sponges.  Is to study the map.  Is to follow the map.  Is to ask questions when you feel lost.  Is to respond to my questions.  Is to be prepared to be wrong sometimes. (Being wrong is okay as making mistakes is an inevitable part of learning.)  Is this job description acceptable to you?

My teaching Philosophy 4. Our Job Is to create an effective and comfortable learning environment, where everybody feels free to express his/her thoughts and ideas.

My opinion  Are there stupid questions? Sure, they are. But if you don’t ask, you will remain stupid.

Do I like nonsense? Yes; “I like nonsense; it wakes up your brain cells (Dr. Seuss)”

Here is a nonsense question: “Why is there economics?”  Resources are limited (scarce).  Wants are unlimited.  Can’t have everything  Need to choose.  Economics is the study of how these choices are made.

Ten principles of economics (Mankiw, Chapter 1)  Is your job secure?  What if your job was 100% secure?  What would that do to your productivity? 1.All else being constant, there is a trade off between job security and workers’ productivity.

Ten principles of economics  What was the next best thing you could do with your time instead of attending this class? 2. There is always a cost associated with an activity. Opportunity cost = value of the next best alternative not chosen.

Ten principles of economics  Have you ever bought a concert or airplane ticket and later decided not to use it?  Is it irrational to not go to the concert?

Ten principles of economics 3. No, rational people think at the margin. The $60 you paid for the ticket is gone any way (sunk cost). So it is irrelevant. Since the day you purchased the ticket, you have found a job that pays $100 an hour. Marginal cost of going to concert> marginal benefit  don’t go.

Ten principles of economics  Since Giant Eagle (a supermarkets in Marietta) started giving points toward purchasing gasoline, my husband never shops anywhere else. 4. People respond to incentives.

Ten principles of economics  Will you buy something if it doesn’t make you better off?  Will you sell something if it doesn’t make you better off? 5. Trade makes everybody better off. This includes international trade Trade is not a zero sum game.

Ten principles of economics  Suppose you have a piece of land and want to sell it.  Will you sell it to a farmer or a builder?  All else being equal, most people will sell it to the person who offers them a higher price.  Why would the builder offer you a higher price?

Ten principles of economics  Because he expects to be able to sell the houses at a high price. Because there is a shortage of new houses in the area.  Why isn’t the farmer offering you a higher prices? Because there is no shortage of agricultural products in the area.

Ten principles of economics  So, is it good that the land was sold to the builder instead of the farmer?  Yes?  That is market economy at work. 6. Markets are usually a good way to organize economic activity.

Ten principles of economics  Suppose a nearby shoe factory pollutes the air.  Who does effectively pay a price for this pollution? The stock holders who don’t live in the area? The customers who also don’t live in the area? The people who live near the factory?

Ten principles of economics  Who should pay a price for this pollution?  People who benefit from shoe production The factory (supplier of shoes) or the customers (demanders of shoes).  This an example of marker failure. 7. Government can sometimes improve market outcome.

Ten principles of economics  Why do the citizen’s of some nations have a higher living standards than others?  In part, because they can produce more goods and services per hour than others (more productive) 8. All else being constant, there is a direct relationship between productivity and living standard.

Ten principles of economics  Too much of anything lowers its value.   Too much money lowers its value 9. Too many dollar bills printed by government  value of each dollar drops  each dollar can buy fewer goods and services  or, dollar price of goods and services rises  inflation

Ten principles of economics  Suppose the prices of good or service that your employers supplies drop sharply. (deflation)  What would that do to profits?  What if the businesses are not profitable anymore?  Shut down  Layoffs  higher unemployment rate 10. In the short run, there is a trade off between inflation and unemployment.