Introduction to Economics

Derek Feng

Monday, July 29th 2019

Who am I?

I B.Sc in Pure Math and Statistics at University of Sydney

I Ph.D in S&DS at Yale University

I Lecturer in Statistics & Data Science at Yale University

I My favorite students call me Professor Feng

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The Unreasonable E�ectiveness of Conditioning

in Statistical Network Analysis

A DissertationPresented to the Faculty of the Graduate School

ofYale University

in Candidacy for the Degree ofDoctor of Philosophy

byDerek Feng

Dissertation Director: Harrison H. Zhou

December, 2018

My Goal

I Make you guys see the beauty in (social) science.

I Economics/Psychology/Statistics > IR

I Yale > Oxford

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My Goal

I Make you guys see the beauty in (social) science.

I Economics/Psychology/Statistics > IR

I Yale > Oxford

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My Goal

I Make you guys see the beauty in (social) science.

I Economics/Psychology/Statistics > IR

I Yale > Oxford

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Propaganda

USA > UK if ?

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Outline

I Basic Concepts of Economics (Today)

I Social Networks (?)

I Machine Learning & Artificial Intelligence &

I International Trade (Kevin)

I Financial Markets (Kevin)

I Game Theory (Joost)

I Business (Nick)

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What this course is not?

I This course is not going to be a condensed version of a typicalECON101 class.

I I will not be giving you just a list of facts to write down andmemorize.

I Don’t be shy about participating. The best way to learn is toengage with the topic.

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What this course is not?

I This course is not going to be a condensed version of a typicalECON101 class.

I I will not be giving you just a list of facts to write down andmemorize.

I Don’t be shy about participating. The best way to learn is toengage with the topic.

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What this course is not?

I This course is not going to be a condensed version of a typicalECON101 class.

I I will not be giving you just a list of facts to write down andmemorize.

I Don’t be shy about participating. The best way to learn is toengage with the topic.

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What is Economics?

MicroEconomics

Question

Under what circumstances does individual optimization lead tooutcomes that are good for the group as a whole?

I Markets / ”Invisible Hand”

I Business (Decisions)

I Game Theory

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MicroEconomics

Question

Under what circumstances does individual optimization lead tooutcomes that are good for the group as a whole?

I Markets / ”Invisible Hand”

I Business (Decisions)

I Game Theory

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MacroEconomics

Question

Why do economies grow, and how to make sure they don’t crash?

I Money

I Unemployment

I Inflation/Interest Rates

I Global Trade

I Economic Growth

I Climate Change

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MacroEconomics

Question

Why do economies grow, and how to make sure they don’t crash?

I Money

I Unemployment

I Inflation/Interest Rates

I Global Trade

I Economic Growth

I Climate Change

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MacroEconomics

Question

Why do economies grow, and how to make sure they don’t crash?

Noone really knows.

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Econometrics

Abstract

We consider the problem of nonparametric functional estimation in anonlinear cointegration model with errors modelled by a linear process.Kernel estimation in this context is made complicated by the wanderingcharacteristics of the regressors. We employ local time densityarguments to establish asymptotic properties of the kernel estimator.Both the results and the methods are applicable to a range of empiricalapplications.

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Assumption in Economics: Humans are Rational Agents.

Assumption in Economics: Humans are Rational Agents.

Behavioral Economics

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What is Economics?

Economics is the study of choices in the presence of scarcity.

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Scarsity: tension between infinite wants and finite resources

What is Economics?

Economics provides insights to help answer the following types ofquestions:

I Should I have cereal or oats in the morning?

I Planned Economy vs Free Market?

I What government interventions are useful to prevent a companyfrom going into a recession?

I Is a minimum wage a good idea?

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Economics is everywhere

You did Economics when you walked into this classroom.

You made a choice to wake up and come here, instead of sleeping in.

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Economics is everywhere

You did Economics when you walked into this classroom.You made a choice to wake up and come here, instead of sleeping in.

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Markets (Planned vs Free)

Question

Who decides the price of milk?

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Answer

Planned Economy: the State.

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Planned Economy

A Planned Economy is an economic system in which the governmentcontrols and regulates production, distribution, prices, etc.

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Question

What are some advantages or disadvantages of a Planned Economy?

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Markets

(Free Markets) are a miracle in collective ”intelligence”.

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Collective (Swarm) Intelligences

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Termites

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Termites are not particularly intelligent, lacking memory and the abilityto learn.

Termites

I Put a few termites into a petri dish and they wander aroundaimlessly

I Put in forty and they start stampeding around the dish’s perimeterlike a herd.

I But put enough termites together (millions), in the rightconditions, and they will build you a cathedral.

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Termites

I Put a few termites into a petri dish and they wander aroundaimlessly

I Put in forty and they start stampeding around the dish’s perimeterlike a herd.

I But put enough termites together (millions), in the rightconditions, and they will build you a cathedral.

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Termites

I Put a few termites into a petri dish and they wander aroundaimlessly

I Put in forty and they start stampeding around the dish’s perimeterlike a herd.

I But put enough termites together (millions), in the rightconditions, and they will build you a cathedral.

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Why am I telling you about stupid ants??

The creation of termite mounds = going to the supermarket andbuying milk.

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Setting

Suppose you have buyers and sellers of milk. This defines a Market.

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Supply and Demand

How is the price of milk decided in a market?

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Law of Demand

What happens to demand as price increases?

I Substitution Effect

I Income Effect

I Law of Diminishing Marginal Utility

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Law of Demand

What happens to demand as price increases?

I Substitution Effect

I Income Effect

I Law of Diminishing Marginal Utility

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Shifts in Demand

1. Tastes/Preferences

2. Number of Consumers

3. Price of Related Goods

4. Change in Expectations

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Law of Supply

What happens to supply as price increases?

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Shifts in Supply

I Price of Resources

I Number of Produces

I Technology

I Taxes & Subsidies

I Future Expectations

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Price

Where the two curves meet is called the Market Equilibrium Price

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What happens when the price is above the market price?

Surplus.

What happens when the price is above the market price? Surplus.

What happens when the price is above the market price?

Shortage.

What happens when the price is above the market price? Shortage.