Introduction to Economics
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
Instructional Method cont.
• Professor available during office hours
and by appointment
• Suggestions for the study of economics
Definition of Economics
• Mankiw’s definition
• Hedrick’s definition
• Alternative definitions
Fundamental Questions of
Economics
• What is to be produced?
• How is to be produced?
• For whom will it be produced?
Economics as a Science
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The scientific method
Normative vs. positive approaches
A brief history of economic thinking
The language of economics
Lecture #2 – The Ten
principles of Economic
Thinking
Categories of Basic Principles
of Economics
• How people make decisions?
• How people interact?
• How does the economy work overall?
How People Make Decisions
cont.
• Principle #1 - People face tradeoffs
– Time allocation – an example of tradeoffs
– Efficiency versus equity
– Production Possibilities Frontier
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
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
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
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-
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