1. Ch. 1: What is Economics? Objectives Define economics Micro vs Macro
The “big questions” in economics
The economic way of thinking
How economists go about their work as social scientists

2. Definition of Economics
Social science that studies the choices that individuals, businesses, governments, and societies make as they cope with scarcity and the incentives that influence and reconcile those choices.
Finished here in 2:15 section

3. Micro vs Macro Microeconomics
study of choices made by individuals and businesses, and the influence of government on those choices.
Macroeconomics
study of the effects on the national and global economy of the choices that individuals, businesses, and governments make.

4. Economic Questions What to produce? How to produce?
Factors of production:
Land
Labor
Capital
Entrepreneurship
For whom to produce?

5. Free market vs. Command
Free market allows individuals and businesses to decide without government intervention.
Command centralizes all decisions.
Mixed market is a combination of extremes.
Examples:
Education
Transportation
Energy

6. Types of government intervention
Direct control
national defense, police, roads
Price Controls
Subsidies
Ethanol, hybrid cars, crops, wind/solar energy, higher education
Taxes
Income, Sales, Property, Excise, Payroll, Tariffs
Regulation
Environmental
Anti-trust
Worker safety
Laws designed to encourage competition.

7. Views on government intervention
Communists versus Capitalists
Democrats versus Republicans
Equity versus Efficiency

8. Economic Growth
Economic growth is an expansion in an economy’s ability to produce goods and services.
Economic growth is affected by:
Capital goods vs consumer goods.
Education and training.
Research and development (new tech)

9. Why does income per capita vary so much around the world?
Source: IMF Data Mapper

10. The Economic Way of Thinking
Economists assume individuals compare costs and benefits in decision making.
Cost is measured by opportunity cost.
the highest-valued alternative that we give up to get something is the opportunity cost of the activity chosen.

11. The Economic Way of Thinking
Economists assume that people make decisions “on the margin”
evaluate the consequences of making incremental changes in the use of their resources.
Marginal Benefit (MB): the benefit from pursuing an incremental increase in an activity.
Marginal Cost (MC): The opportunity cost of pursuing an incremental increase in an activity.
If MB>MC  pursue more of the activity.
If MB<MC  pursue less of the activity.
Start here 8.30 Wed

12. The Economic Way of Thinking
Economists assume people respond to incentives.
Incentives affect MB or MC
Taxes
Subsidies
Employer compensation methods.
Incentives are key to reconciling self-interest and the social interest.
Pollution
Crime
Fishing
Water usage
Finished here in 2:15 section.

13. The Economic Way of Thinking
Two types of economic statements:
positive statements
normative statements
A positive statement can be tested by checking it against facts
A normative statement cannot be tested.

14. The Economic Way of Thinking
Economic models
a description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand.
Testing Models
Experiments
Real world data

15. The Economic Way of Thinking
Obstacles and Pitfalls in Economics
Ceteris paribus (other things being the same):
To isolate the effect of interest, economists use the logical device called ceteris paribus or “other things being equal”, or “other things being the same”.
The fallacy of composition:
The false conclusion that
what is true for the parts is true for the whole
what is true for the whole is true for the parts.
The post hoc fallacy
the error of reasoning that a first event causes a second event because the first occurs before the second