Economics For the Citizen By Dr. Walter Williams Notes and Lecture

Part 1 - Questions Why is violence Effective at resolving conflict? What is meant by limitless human want? What happens if we run out of resources? Will there be an alterative resource? How long is scarcity? How can we prevent scarcity?

Scarcity Think Scared City Human want exceeds the means to satisfy those wants

Human Want Desire for stuff – Example: Hunger causes you to want food. You eat a Big Mac to satisfy your hunger You become hungry again – Want is Limitless Addiction – Uncontrollable amount of Human Want

Conflict of Scarcity Society can only produce so much stuff The Economic problem is – What to produce? – How to Produce? – How much to produce? – Who gets what is produced? – When is it produced? – Who produces it?

Methods to resolve the conflict Government Fiat – Government answers the conflict Market Mechanism – Buyers and sellers at the highest price Violence – Taking through force Gifts – Needs a gifter and a receiver willing to accept the gift – Not all gifts are good

Part 2 - Questions Which method of conflict resolution is best?

Normative vs Non-Normative Normative – Opinion Ask which is better or worse Statements contain should and ought. – You should go to college so you can get a good job. – Theory can’t answer normative questions – Useful for tricking people into doing what you want Mom, “I need a new pair of Jordan’s”

Normative vs Non-Normative Non-Normative – Deals with Facts Market mechanism produces greater overall weath than the other methods of conflict resolution. – Used to argue normative Water freezes at 32 degrees “It is freezing out here.” When it is 32 degrees or lower

Questions Why does misunderstanding exchange lead to confusion? Consumption, how does it work? Why are consumption and exchange different? What makes them different?

Econ for the Citizen – Part 3 4 Classes of Economic Behavior – Production – Consumption – Exchange – Specialization

Production Any behavior that creates utility Utility is usefulness – Or the ability or capacity to satisfy want Production includes making things from raw materials Or improving existing things making them more useful

Consuming The using of an item If production is greater than consumption – Savings occurs Consumption may use up a product’s utility Or it may be consumed over and over again – Time of usefulness is also called a product’s lifecycle

Exchange Exchange is the transfer of title in one thing, for the title of another thing Title represents ownership of an item Voluntary Exchange occurs when both parties perceive themselves better off as a result of the exchange. Exchange can include items, money, time, and effort – Example: you trade your time and effort for $ at your job. Or you trade time and effort for grades and education at school

Specialization Specialization is simply being really good at something and focusing on producing that item. Specialization occurs when more of something is produced than plans to be consumed. – Requires unequal endowment of resources and trade opportunities Example: Japan is good at making video game consoles. US is good at growing corn. US trades extra corn for Japan’s extra video game consoles

Opportunity Cost and Total Cost Total cost - What you give up in order to get something – Not just the price or $$ required, but time, effort, travel, and other requirements Opportunity cost – What you could have done instead with your money, time, energy, etc. Generally, the higher the Cost, the less amount of people who want it

Quality vs Quantity Quality deals with the ability of an item to satisfy want. The amount of utility the item has. – Generally, the higher the quality the higher the costs. Quantity deals with the amount of items it takes to satisfy want. A Prime Rib eye steak vs. a McDonald’s hamburger

Law of Demand The Higher the Cost, the less that will be used or taken by humans. The Lower the Cost, the more will be taken or used by humans. There is always at least one substitute for any good. That is to do without the good.

Relative Price How much something costs in relation to another item. – 1 burrito cost $6.00 at Chipotle, 1 Taco costs $1.00 at Taco Bell. – Relative Price compares the 2 items So, 1 Chipotle Burrito costs 6 Taco Bell Tacos You work in Manor for $8.00 per hour at Wal- Mart. You get an offer to work for $10 per hour at HEB in Cedar Park. Do you take it? – Depends on the relative price – You have to include gas, time, travel, work environment, benefits, number of and time of hours

Equilibrium Equilibrium is where Supply of an item and demand for that item equal. – It is where price is determined

Review and Unit Test Tomorrow