1. Introduction to Economics

2. Instructional Method
Primarily Lecture format with discussion, simulations, and video presentations
Constructive discussion is welcomed
Grading is based on five of seven quizzes (25%), three midterms (25% each), and an optional comprehensive final (replaces lowest midterm) – NO MAKEUPS GIVEN

3. Instructional Method cont.
Professor available during office hours and by appointment
Suggestions for the study of economics

4. Definition of Economics
Mankiw’s definition
Hedrick’s definition
Alternative definitions

5. Fundamental Questions of Economics
What is to be produced?
How is to be produced?
For whom will it be produced?

6. Economics as a Science The scientific method
Normative vs. positive approaches
A brief history of economic thinking
The language of economics

7. Lecture #2 – The Ten principles of Economic Thinking

8. Categories of Basic Principles of Economics
How people make decisions?
How people interact?
How does the economy work overall?

9. How People Make Decisions cont.
Principle #1 - People face tradeoffs
Time allocation – an example of tradeoffs
Efficiency versus equity
Production Possibilities Frontier

10. How People Make Decisions cont.
Principle #2 - The cost of something is what you have to give up to get it
Opportunity costs come from Von Weiser, a German economist late 1800s
Opportunity costs are independent of monetary units
TINSTAAFL
The real costs of going to college

11. How People Make Decisions cont.
Principle #3 - Rational people think at the margin
Rational or irrational decision-making
Marginal benefits and costs versus total benefits and costs
Weighing marginal costs and benefits leads to maximizing net benefits (total welfare)
Activity with coins on overhead camera

12. How People Make Decisions cont.
Principle #4 –People respond to incentives
Reactions to changes in marginal benefits and costs
Increases (decreases) in marginal benefits mean more (less) of an activity
Increases (decreases) in marginal costs mean less (more) of an activity
Example of seat belts leading to increased speeds
Example of SUV (with child car seat) in Issaquah

13. How People Interact Principle #5 - Trade can make everybody better off
Adam Smith author of the “An Inquiry into the Causes and Consequences of the Wealth of Nations” 1776
Gains from the division of labor and specialization
Mercantilists perspectives
Example of why Ellensburg
Principle #6 - Markets are usually a good way of organizing economic activity
feudal times where feudal states were self-supporting, also haciendas in the new world
the benefits of trade are so powerful that people began to trade
markets for economists are more abstract than the notion of a middle eastern bazaar or a flea market and simply determine the prices and quantities traded of different goods and services
the “failure” of centrally planned economies and the movement towards markets for the WHFM questions
Principles 1-5 combine with markets to turn the pursuit of self-interest into promoting the interests of society
Adam Smith and the “invisible hand”
creativity and productivity are stimulated by the pursuit of self-interest into improving resource allocations
“set it and forget it” becomes “compete or be obsolete”
in some cases markets fail to allocate resources effectively so,
Principle #7 Governments can sometimes improve market outcomes
there are circumstances when market signals fail to allocate resources efficiently or equitably
public goods, the exclusion principle, and the free-rider problem
nonrival consumption – why exclude?
exernalities: some costs and benefits of some goods and services are not registered or are external to market forces
too little of a good is produced and consumed such as vaccines which provide external benefits and too much of a good is produced and consumed that generates pollution which causes external costs
markets may also fail to provide an equitable or fair distribution of resources
government intervention with its ability to coerce (the opposite of voluntary) can regulate, tax and subsidize to change market outcomes
efficiency and equity: the pie analogy
if government intervention always the proper solution?

14. How the Economy works as a Whole
Principle # 8 – A country’s standard of living depends upon its ability to produce goods and services
Adam Smith’s “An Inquiry into the Nature and the Consequences of the Wealth of Nations”
Materialism – more toys mean more welfare
wealth: a necessary or sufficient condition for happiness (are rich people happier, children with lots of toys)
leisure time and productivity
the factors of production: land or natural resources, labor, capital, entrepreneurship
technology and productivity
the rule of 72 for growth rates
Principle #9 – The general level of prices rises when the government prints and distributes too much money
definition of money, the concept of snow to Inuits, and economic language
inflation is an increase in the general or average level of prices in an economy
“not worth a continental” and recent example in Argentina
the establish of the Federal Reserve and the introduction of sustained inflation in the US
Principle #10 – Society faces a short-run tradeoff between inflation and unemployment
Short-run and the long-run
demand and supply shocks
short-run increases (decreases) in output above (below) long-run potential output lead to adjustments
countercyclical stabilization versus procyclical destabilzation
political business cycles