1. Basic Principles and thought processes of economics
Economics Lecture one
Basic Principles and thought processes of economics
Professor Chris Wimmer
October

2. Discussion of Class Outline
Course Detail: The course Introduction to Economics intends to present the student with micro and macro economics’ basic principles and assumes the student has no prior knowledge on the subject matter. Some understanding of mathematics and calculus may be needed as a pre-requisite or at least a co-requisite. The course will use a combination of lectures, tutorials, group assignments/presentations, directed readings, and other media to educate the student. The evaluation methods will be as presented below. The text for the course will be Greg Mankiw’s Principles of Economics 3rd or 4th edition. Additional readings and journals will be directed as required. All lectures will be for two hours but may also require class discussion, student presentation, or forms of media such as video.

3. Tentative Evaluation Methods
Tutorial participation – 10% (show up)
Quizzes (3) – 36%
Group Presentation – 20% (5% peer)
Final Exam – 34 %

4. Outline of Class Rules Be on time Don’t sleep in class
Raise your hand to talk
There are no dumb questions
Never laugh at people
No cheating
Turn off cell. Make calls on break
If you are absent, let me know ahead

5. Economics A working definition
Text: A study of how a society manages its resources.
Interactions of consumers and producers.
Study of the market
Scarcity causes value and need for strategic allocation

6. Part One: Ten Principles of Economics
1. People face trade-offs
2. Opportunity cost
3. Rational thinking
4. Incentives
5. Benefits of Trade
6. Markets and Economic Activity
7. Government influence
8. A Country’s Production and Living Standards
9. Inflation
10. Inflation and Unemployment

7. Trade offs and Opportunity Costs
Must always give something up to get something else. (Don’t forget your time is valuable too!)
E.g. Sleeping vs. Studying, Food vs. Clothes
Efficiency/Equity Trade-off  Read definitions on page 5
Pro-growth strategy do not always reduce inequality. Increasing equity sometimes doesn’t increase total production
Taxing rich higher = less incentive to work

8. Opportunity cost
Definition: Opportunity cost is whatever is given up (forsaken) to get an item or service or anything else you want to do or enjoy
If you are have to take time off work to go to the dentist, what is the opportunity cost of a $100 visit.
Get them to give examples

9. Rational people
People try to achieve their objectives with the best of their ability
People will want more of good things and less of bad things
Firms try to achieve highest profit
Consumers try to achieve highest satisfaction

10. Marginal Changes
People make small decisions or incrementally e.g. should I go to class today, should I eat 1 more candy, should I buy another computer
Marginal cost vs. marginal benefit (revenue)
If marginal benefit > marginal cost?

11. Incentives Something that induces a person to react
It influences your behaviour and your wants
Price is major incentive in consumers mind
e.g. Price of Coke goes up….people buy more Pepsi (substitute). Pepsi buys more cans because they can sell more products
e.g. Banning smoking inside = incentive to quit

12. Benefits of Trade Allows specialization which benefits us all
Imagine no trade and you had to do everything and create everything yourself?
Countries can concentrate on what they have an advantage at and trade for things that they find hard to do or have a lack of domestically

13. Markets and Economic Activity
Markets are where trade takes place between a buyer an seller. These days it doesn’t have to be a physical place
Market economies let the ‘invisible hand’ or market forces allocate its resources.
This is said to produce the highest level of efficiency
Producers and consumers interact in a market to establish the price of goods or services and quantity produced.
Any impediments are said by most economists to reduce efficiency and total welfare

14. Market failure and Government
Adam Smith gave a few examples when governments should intervene  Market Failure  Markets fail to allocate resources efficiently  need to perform market correction
There are a number of reasons for market failures
E.g. Externalities, market power, lack of information, transaction costs, trade barriers etc

15. Read Chapter One Do Questions: Pg. 16  17 Q# 2, 5, 6, 7, 10
Pr. # 3, 4, 5, 6, 8, 9, 11, 12, 16

16. Thinking Like an Economist!
Social science? Humanity? Science?
Using models to explain everyday behavior and attempt to predict future
First step: Be smarter than all other scientists, students, and professors ; )

17. Model One: Circular-Flow Diagram
Shows the flow of money through different transactions between households (you and I) and firms (businesses)
Two markets: 1. Goods and Services 2. Factors of production
Very basic model of economy with no government or international trade
Outside flow of dollars, inside flow of inputs and outputs

18. Model Two: Production Possibility Frontier
Shows the possible output levels for an economy given its resource and production restraints
Often times trade-offs need to be made to increase production of a good because similar inputs are used for another product
Points outside the frontier are not possible. Inside the frontier are inefficient
This model helps explain the concepts of trade-offs, opportunity costs, and efficiency
Notice that the opportunity cost changes as you move up and down the curve. Products are worth less when there are more of them already produced.
Opportunity cost = the slope of the curve

19. Macro vs. Micro Economics
Microeconomics is the study of firms and households interacting (price setting, monopoly producers)
Macroeconomics deals with the whole country’s economy (GDP, Inflation, Budget surplus)

20. Demand Curve!!! Very Important
Shows the quantity demanded by a consumer at a given price.
But will be used a lot to explain concepts and has a lot more to offer than it seems at first
Downward sloping

21. Review Questions Pg. 36  37 Q# 2, 4, 6 Pr. # 1, 2, 3, 4, 5, 8
Review Chapter 2 appendix and understand graphs, variables, slope, graph shifts

22. Slope and Curves Rise over run Change in Y over change in X
Demand curve negative slope!
Why?
What does this mean?

23. Questions and Discussion
Hope you enjoyed your first lecture!
Office hours are Monday and Thursday 10:30 to 12:30 or by appointment
My office is on the second floor under Foreign Expert….because that’s me.
Course outline coming soon.