EconomicsIntroduction/Overview

7 Oct 2010

Introductions◦ 3 * 5 Cards

Name “Callsign/Nickname” for grading purposes E-mail

◦ Who you are◦ Home town◦ Where you work◦ Why you are taking this course

Syllabus Review

Agenda

What is “Economics”?

Influential Economists

Math/Graphing Introduction

Conclusion

Note: 10 minute breaks at the top of the hour

Agenda (continued)

Keep up with the reading Interact Ask questions/seek help

Keys to Success

ECONOMICS!

Mankiw: “Economy comes from Greek word Oikonomos, which means ‘one who manages a household’”

How does one manage a household?◦ By making decisions!

Economics Defined

Economics is the “science of scarcity”….a DISMAL SCIENCE!

If Economics is a social science…..

(And it’s dismal)……

Why study it?

What’s in it for me?

?????Why?????

Markets have made SOCIETY much better off

In the 20th Century:◦ US life expectancy rose from 47 years to 77◦ Infant mortality declined by 93%◦ Numerous diseases eradicated: Polio, Tuberculosis, Typhoid, etc

Markets/Free Market Economy are responsible

The Power of Markets!

“Economy is the art of making the most of life. Economics is the study ofHow we do that!”….Gary Becker (Nobel Prize 1992)

#1. Individuals will act to make themselves as well off as possible◦ Utility

Maximizing utility is synonymous with acting selfishly? No

Trade-Offs Every decision we make involves some sort of trade-off We may trade off utility now against utility in the future

Essential Foundations

The cost of something is what you must give up in order to get it

#2. Firms (the guy selling used watches on eBay or Microsoft) attempt to maximize their profits

◦ A profitable firm is like a chef who can buy $30 worth of groceries and turn it into a $100 meal

◦ Firms have decisions: What to produce How much to produce What price to sell

Essential Foundations (cont)

The Market

Firms

Consumers

Come together

Price◦ Price settles the point where the number of items

for sale exactly matches the number of that good consumers want to buy

What Drives the Market?

The Market is amoral◦ It rewards scarcity◦ It does not provide the goods we need, but it does provide

the goods we want to buy

Prices are used to allocate scarce resources◦ Who gets Superbowl Tickets?

Markets are self-correcting

Fixed prices lead to other forms of competition

Every market transaction makes us better off

How the Market Works

Markets….Parting Remarks Good system, but imperfect Free Market System is much like our system

of Individual Liberties◦ US Democracy◦ System that forces us to choose vaccines over

doggie birthday cakes is oppressive◦ Communism (command economy) failed

Controlled the lives of its citizens

1. People face trade-offs2. Cost of something is what you give up to get it3. Rational people think at the margin4. People respond to incentives5. Trade can make everyone better off6. Markets are usually a good way to organize economic

activity7. Governments can sometimes improve market outcomes8. A country’s standard of living depends on its ability to

produce goods and services9. Prices rise when the government prints too much money10. Society faces a short-run trade-off between inflation and

unemployment

Mankiw’s Ten (10) Principles of Economics

Influential Economists

Adam Smith (1723 – 1890)

“Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.”

Father of Economics◦ Logic Professor

An Inquiry Into the Nature and Causes of the Wealth of Nations◦ Self Interest◦ Division of Labor◦ Function of Markets◦ Laissez-Faire Economy

Died: 1790 Gave a lot of money to

charity

http://www.lucidcafe.com/library/96jun/smith.html

Thomas Malthus (1766-1834)

I happened to read for amusement Malthus on Population, and being well prepared to appreciate the struggle for existence which everywhere goes on (Charles Darwin)

Ordained Minister in the Church of England

Had a lot of time to spend debating with his father

Essay on Population (1798)◦ Population growth would

outstrip agricultural resources◦ Everyone would starve

Gloom and Doom Became full time professor

of History and Political Economy◦ England’s first Academic

Economist

http://www.ucmp.berkeley.edu/history/malthus.html

David Ricardo (1772 – 1823)

"Gold and silver, like all other commodities, are valuable only in proportion to the quantity of labour necessary to produce them and bring them to market”

Born of Portugese –Jewish heritage

Fled to England Began working in London

Stock Exchange at age 14 Astute thinker Elected to Parliament in 1819 Read Wealth of Nations by

chance Went toe-to-toe with Malthus Best known for “Comparative

Advantage”◦ Specialization should occur in the

area where one nation (or entity) holds a cost advantage

http://homepage.newschool.edu/het//profiles/ricardo.htm

Vilfredo Pareto (1848-1923)

Italian AristocratEconomist/EngineerMechanical equilibrium from Engineering led to conclusions in Economic theoryChallenged concept of UtilityAdvanced theory of Preferences and therefore Micro EconomicsPareto Principle

80% of problems arise from 20% of the defects

Karl Marx 1818-1883

Born to middle class family in GermanyStudied law, then moved into journalismMoved to France and became enthralled with utopian society of cooperative productionPublished Das Kapital

Deported from France and England

Proponent of Revolution

Frederick Taylor (1856-1915)

Studied workplace throughout his lifeUltimate goal: create efficient environmentFather of Scientific ManagementWorkers incapable of understanding tasks; they had to be supervisedHarvard based MBA program on his principles

John Maynard Keynes (1883-1946)

Born in EnglandLived through depressionMade and lost fortunes speculating

Foundation of learning the hard way

Challenged economic thought during the period—output is determined by demandAdvocated government interventionTheories behind FDR/New Deal ecoonomics

containedhttp://wwwlhttp://popd22301

Milton Friedman (1912-2006)

Founder of “Chicago School”Challenged Keynesian economicsSocial responsibility of business is to increase its profitsNobel Prize in 1976Ideas led to Federal Reserve’s power in monetary policy

Allen Greenspan (1926-Present)

Musician—played Clarinet

Studied Economics at Columbia, went on to Graduate with PhD from NYU

PhD dissertation (which was pulled) focused on housing bubble

Served as Chairman of Federal Reserve from 1987-2006

Ben Bernanke (1953- Present

PhD from MIT Current Chairman of

Federal Reserve (on second term)

Student of Great Depression

Professor of Economics at Princeton University since 1985

N. Gregory Mankiw (1958- Present)

Author of your textbook

PhD from MIT “New Keynesian” Critics include Paul

Krugman 2003-2005 Served as

Chairman, Council of Economic Advisers to George Bush

Has been a vigorous critic of stimulus package

http://gregmankiw.blogspot.com/

Paul Krugman (1953- Present)

PhD from MIT Widely cited and

published Considered #6 out of

100 top intellectuals Theory of New Trade

◦ Advocates protectionist measures

Nobel Prize 2008 “Great Unraveling”

◦ Bush policies led to economic turmoil

http://krugman.blogs.nytimes.com/

Steven Leavitt (1967 – Present)

PhD from MIT Professor at University

of Chicago Author of

Freakonomics Controversial studies

◦ Crime◦ Society◦ Abortion

http://freakonomics.blogs.nytimes.com/