1. Introduction to Economics
D.W. Hedrick

2. Instructional Method
Primarily Lecture format with discussion, simulations, and video presentations
Constructive discussion is welcomed
Grading is based on Aplia Homeworks (20%), five of seven quizzes (20%), three midterms (20% each), and an optional comprehensive final (replaces lowest midterm) – NO MAKEUPS GIVEN

3. Instructional Method Suggestions for the study of economics
Read the book before coming to class
Recopy lectures and reread the book within several hours of class
Identify what you don’t understand
Ask questions in class
Use the Aplia and the study guide (optional)
Go to tutors in supplemental instruction (if offered)
Visit the professor during office hours

4. Definition of Economics
Mankiw’s definition
How Society manages its scarce resources
Hedrick’s definition
How society chooses to allocate its scarce resources among competing demands to best satisfy human wants
Alternative definitions
Economics is the study of choice.
Economics is what economist do.
Wikipedia's perspective

5. Scarcity and the Fundamental Questions of Economics
Scarcity : Unlimited wants versus limited resources
Choices and tradeoffs
Opportunity Costs
All societies must answer the WHFM questions
What is to be produced?
How is to be produced?
For whom will it be produced?

6. Economics as a Science The Scientific Method
Observation →Hypothesis →Testing
Observation: identifying and measuring important variables – orderly loss of information
Hypothesis: educated guesses about cause and effect with the variables
Theories
Models: realism or usefulness
Testing: theories can’t be proven and are supported by repeated failed attempts to disprove them.
Microeconomics vs. Macroeconomics
The Assumption of Rational Behavior
Max TNB = TB – TC
Boxes Example
MB=MC rule
People respond to incentives
Limits to the use of rational behavior (e.g. axe murders)

7. Microeconomics versus macroeconomics
Normative vs. positive approaches
A brief history of economic thinking
The language of economics

8. Mankiw’sTen Principles of Economic Thinking

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

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

11. How People Make Decisions
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

12. How People Make Decisions
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)

13. How People Make Decisions
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

14. 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 Ellensburgians should trade with others

15. How People Interact
Principle #6 - Markets are usually a good way of organizing economic activity
Feudal times and haciendas in the new world
The power of trade: cooperation versus conflict
Markets: prices and quantities traded, typical and abstract

16. How People Interact
Principle #6 - Markets are usually a good way of organizing economic activity creativity and productivity and resource allocation
“Failure” of centrally planned economies
“set it and forget it” becomes “compete or be obsolete”

17. How People Interact
Principle #7 Governments can sometimes improve market outcomes
Market signals can fail to allocate resources efficiently or equitably
Public goods, the exclusion principle, the free-rider problem and non-rival consumption
External costs and benefits
Examples: vaccines, education, pollution

18. How People Interact
Principle #7 Governments can sometimes improve market outcomes
Equitable or fair distribution of resources
Efficiency and equity: the pie analogy
Government Failure: is government intervention always the proper solution?

19. 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)

20. How the Economy works as a Whole
Principle # 8 – A country’s standard of living depends upon its ability to produce goods and services
leisure time and productivity
the factors of production: land or natural resources, labor, capital, entrepreneurship
technology and productivity
the Rule of 72 and growth rates

21. How the Economy works as a Whole
Principle #9 – The general level of prices rises when the government prints and distributes too much money
Definition of money, and economic language

22. How the Economy works as a Whole
Principle #9 – The general level of prices rises when the government prints and distributes too much money
Examples: “Not worth a continental” and Argentina
Establish of the Federal Reserve and the introduction of sustained inflation in the US

23. How the Economy works as a Whole
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

24. How the Economy works as a Whole
Principle #10 – Society faces a short-run tradeoff between inflation and unemployment
Counter-cyclical stabilization versus pro-cyclical destabilization
Political business cycles