Some Economics in
an Hour
Lessons from Airtex Aviation
and Elsewhere
Introduction to Economics
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How do you define economics?
Introduction to Economics
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How do you define economics?
Economics studies the allocation of scarce
resources to competing interests.
Economics is a method of analysis and is not
defined by typical subject boundaries. It is
one of the broadest areas of study.
Benefits of Economics

Empirical—can use data to make inferences

Theory—people respond to incentives
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Policy—helps identify and avoid unintended
consequences
First Observation
The optimization principle: people try to
do the best they can with what they
have or subject to their constraints.
Airtex Aviation: Questions
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Who are the main players in this case?
How did Frank and Ted choose a firm to buy?
What problems did Airtex face?
What was the firms’ human capital?
What were the most important changes they
made?
How did the change affect the business?
Airtex Aviation: Summary
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Illustrates benefits of decentralization
Main elements
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Turn operating activities into departments and make them
profit centers
Use of market mechanisms, “transfer” prices
Incentives for department managers
Effects
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Exploited specific knowledge
Improved efficiency
Freed Ted and Frank to manage and teach
Market Solutions
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Market coordination decentralized
Markets
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Allocate resources and property rights to their
highest value use
Make good use of specific/local knowledge
Reward and punish resource owners
Principles of human capital
The Power and Beauty of
Economics
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HOPE and Paying for grades
Effects of HAART
Pollution and unintended consequences
Firearms
Options on US employment data
Cap and Trade
Environment
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