EC 201
Cal Poly Pomona
Dr. Bresnock
Lecture 1
What is Economics? Here are a couple of definitions.
It is a social science concerned with the efficient use of limited, or scarce, resources to achieve
maximum satisfaction of human material wants. (typical texts)
An analysis of choice making. (Bresnock)
What is ECON 201?
ECON 201 introduces you to what economists call “the economic way of thinking”. This is the
logic of incentives -- benefits and costs -- that economist use every day to understand the
millions of decisions consumers, business, and governments make. The goal of Economics A170
is to provide this basic framework of incentives, and help you practice and understand it.
Understanding the basic logic of economic incentives at the level of the individual decision maker
will help you enormously in learning economics in all future courses.
Fundamental Economic Problem
Unlimited Wants
Demands
vs
Limited Resources
>
Supplies
Scarcities
Consumer Decision – maximizing satisfaction given their limited income, or budget.
Producer Decision – maximizing profit given their limited resources.
Government Decision – maximizing net benefits to society given limited budgets.
Private Sector = Consumers + Producers
+ Public Sector = All Levels of Government
Mixed Market Economy , i.e. U.S.
Types of Economies
Transitional Economies – Eastern Europe, China
Pure Market
(Capitalism)
Hong Kong, Singapore, Australia,
Ireland, New Zealand, U.S, Canada,
Denmark, Switzerland, U.K.
Pure Command
(Communism)
North Korea, Zimbabwe, Cuba,
Myanmar (Burma), Eritrea,
Venezuela, Congo, Libya
ECON 201
Lecture 1
Dr. Bresnock
Pure Market – private property rights and decentralized decision making coordinated through
markets. Pure Command – state ownership and control of economic resources and central
planning.
Resources – also known as inputs. An input is also referred to as a “factor of production” if it
earns income over and over again, i.e. labor and capital equipment are used repeatedly in
production whereas other inputs, i.e. electricity, cloth, are used only once.
I.
Human Resources
A.
Labor – many types. See “occupational triangle” below. Notice that there are
more plentiful workers in the unskilled category. Consequently the wage for
those workers will be quite low. At the top of the triangle there are far fewer
workers in the “G” (short for genius or someone with unique talents), and such
persons receive rather high salaries. “M & P” represents managers and other
professional persons.
G
M&P
Skilled
Semi-Skilled
Unskilled
Note also that the Human Capital of the workers increases greatly as the workers
move higher on the occupational triangle. Human capital is a measure of the
workers education, training and skills.
B.
II.
Entrepreneur – creative genius, the person or persons who put together all of the
production inputs and produce a marketable product.
Non-Human Resources
A.
Capital – tools, equipment, aka “investment goods”. Not stocks and bonds
(which are financial capital), and not money. (Financial resources are used to
purchase physical productive inputs; they are a medium of exchange not a
productive input.)
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ECON 201
Lecture 1
B.
Dr. Bresnock
Land -- “Natural Capital”. Environmental and natural resource endowment, i.e.
air and water resources, forests, fish, minerals and materials, energy resources,
species, agricultural products, land.
Consumer Goods and Services
1.
2.
3.
Durable Goods – i.e. TVs, cars, washing machines, refrigerators, stoves, furniture;
relatively stable expenditure pattern over last 70 years.
Non-Durable Goods – i.e. food, clothing, small appliances, cleaning products, footwear,
beverages; decrease in expenditure pattern over last 70 years.
Services – i.e. dental work, manicures, car repairs, child care, health care, laundering,
home repairs; increase in expenditure pattern over last 70 years.
Public Goods and Services
1.
2.
Pure Public –goods and services only produced by government, i.e. national defense,
lighthouses,
Quasi-Public -- goods and services produced in part by government and in part by the
private sector, i.e. education, housing, medical care,
Key Microeconomic Questions
1.
What to Produce? How are finite resources allocated to satisfy infinite societal
wants/demands? Choices made by consumers, firms, and government. These choices are
constrained by either limited monetary budgets or physical resources.
2.
How to Produce? Efficiency goal. The way the market economy manages to use the
power of self-interest for the good of society (aka “invisible hand concept”
A.
Productive, or Technical Efficiency – achievement of maximum output with full
usage of all inputs at lowest production cost. Focuses on physical efficiency.
B.
3.
Allocative Efficiency – production of the combination of goods and services that
people prefer given their income. Focuses on market analysis. Goods and
services are produced up to the point where the marginal benefit to consumers is
equal to the marginal cost of producing them.
How to Distribute? Equity, or fairness, goal. But who determines what is fair?
Distribution of goods and services depends on the distribution of income. Those with
more income receive a larger share of goods and services in general.
Positive
vs.
Factual
What is,
Was, or will be
Empirical analysis
Normative
Analysis
Subjective
What should
or ought to be
Intrusion of value judgment
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ECON 201
Lecture 1
Dr. Bresnock
Micro vs. Macroeconomics
Microeconomics analyses the behavior of specific economic units, i.e. how does an individual
consumer decide how to spend his/her income, how does a business firm determine what to
produce.
Macroeconomics analyzes the behavior of an entire economic system, i.e. aggregate economic
analysis, study of U.S. economy as a whole
Key Macroeconomic Issues
A.
B.
C.
Stable Prices – low inflation
Full Employment – low unemployment
Sustainable Economic Growth – that is consistent with low inflation and low
unemployment
(Real GDP on vertical axis in %)
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ECON 201
Lecture 1
Dr. Bresnock
United States Economic Growth
2.3%
14,000.0
3.1%
12,000.0
3.1%
10,000.0
3.3%
8,000.0
4.4%
6,000.0
4,000.0
2,000.0
3.26%
0.0
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
Unemployment (vertical axis in %) appears below.
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ECON 201
Lecture 1
Dr. Bresnock
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ECON 201
Lecture 1
Dr. Bresnock
Unemployment Data
Data on unemployment rates from the BLS for August 2010, 2012, 2013 and 2014, provided the
following data for the top and bottom states ranked by unemployment rate.
Top 5
2010
2012
Nevada
Michigan
California
Rhode Island
Florida
D.C.
Illinois
Kentucky
Mississippi
14.4% 12.7%
13.1% 9.0%
12.4% 10.9%
11.8% 10.9%
11.7%
9.9%
9.9%
2013 2014
Bottom 5
2010
2012
2013
2014
9.5%
9.0%
8.9%
9.1%
8.5%
7.7%
8.0%
9.0%
3.7%
4.5%
4.6%
5.7%
6.0%
3.2%
4.2%
4.0%
5.2%
5.0%
8.7%
9.2%
7.4%
8.7%
7.8%
7.4%
North Dakota
South Dakota
Nebraska
New Hampshire
Vermont
Wyoming
Hawaii
Iowa
Louisiana
Utah
3.0%
3.8%
4.2%
5.0%
4.6%
4.6%
4.3%
2.6%
3.6%
3.6%
4.7%
3.7%
4.2%
4.6%
4.4%
4.5%
3.9%
The top 10 unemployment rates for metro areas (BLS, 2010, 2012, and 2013) are:
El Centro, CA
Yuma, AZ
Yuba City, CA
Merced, CA
Modesto, CA
2010
2012
2013
30.3% 26.4% 26.1%
28.7% 24.5% 34.5%
19.0% 18.8% 14.0%
18.9% 19.5% 14.6%
17.6% 16.9% 12.9%
Stockton, CA
Visalia-Porterville, CA
Fresno, CA
Chico, CA
Bakersfield-Delano, CA
Hanlon-Corcoran, CA
2010
17.4%
16.9%
16.2%
16.0%
16.0%
2012
16.6%
17.3%
16.9%
13.7%
15.0%
16.9%
2013
12.8%
13.8%
12.5%
10.8%
11.6%
12.6%
much further down the list are:
Riverside-San Bernardino-Ontario, CA
Las Vegas-Paradise, NV
LA-Long Beach-Santa Ana, CA
Oxnard-Thousand Oaks-Ventura, CA
SF-Oakland-Fremont, CA
San Diego-Carlsbad-San Marcos, CA
San Jose-Sunnyvale-Santa Clara, CA
Santa Rosa-Petaluma, CA
San Luis Obispo–Paso Robles, CA
2010
15.1%
14.8%
12.5%
11.3%
10.8 %
10.8%
2012
12.4%
13.1%
11.0%
9.7%
8.7%
9.3%
2013
11.0%
9.7%
9.8%
8.0%
6.9%
7.8%
7.2%
7.1%
6.9%
County Unemployment from the CA Employment Development Department (EDD) appears below as
of August 2010, 2012, and 2013. (Note: EDD also reports on the % change in employment for 2006
to 2016 for the occupations that are forecast to have the fastest job growth by area.)
Los Angeles
Orange
Ventura
San Bernardino
Riverside
San Diego
2010
13.0%
9.6%
11.2%
14.2%
15.3%
10.6%
2012
12.1%
8.0%
9.6%
12.3%
12.6%
9.3%
2013
10.1%
6.2%
7.8%
10.4%
10.4%
7.4%
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ECON 201
Lecture 1
Dr. Bresnock
(Also see the attached figure and link that gives recent trends in California and U.S.
unemployment rates up to July 2014.)
Go to:
http://www.calmis.ca.gov/file/lfmonth/calmr.pdf
This site update the data above through July 2014. As of July 2014 the CA unemployment rate
was 7.4% while the U.S. unemployment rate was at 6.2%.
The following tables give rankings of full-time average annual earnings for the top ranked
occupations in selected years.
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ECON 201
Lecture 1
Dr. Bresnock
Table 1. Twelve high-paying full-time(1) occupations that were ranked in the top 20 in
1997 and 2005, percent change in earnings, National Compensation Survey
2005 data
Hourly
earnings(2)
Occupation (1997
data)
1997
ranking
Occupation (2005
data)
2005
Relative
ranking Mean error(3)
Mean
weekly
hours
Percent
change
19972005
Airplane pilots and
navigators
1
Airplane pilots and
navigators
1 $97.51
13.0
23.5
51.3
Law teachers
2 Economics teachers
2 66.23
19.2
42.8
30.4
Chief executives
and general
administrators,
public
administration
3
Judges
3 61.38
11.1
39.8
44.0
Economics teachers
4
Physicians
4 61.34
11.0
41.9
63.6
Judges
6
Agriculture and
forestry teachers
6 55.12
23.5
34.6
31.4
Agriculture and
forestry teachers
7
Law teachers
7 55.10
15.3
38.9
-6.1
Physics teachers
8
Physics teachers
8 53.20
8.5
38.7
31.7
Medical science
teachers
11
Chief executives
and general
administrators,
public
administration
10 52.11
6.3
42.8
1.9
Physicians
12
Medical science
teachers
11 51.79
10.2
45.7
34.4
Dentists
14
Lawyers
12 50.89
4.9
41.5
46.8
Managers,
marketing,
advertising, and
public relations
18
Dentists
14 46.30
11.0
41.3
26.1
19
Managers,
marketing,
advertising, and
public relations
17 45.33
4.2
41.2
Lawyers
30.0
Source: Changes in Occupational Ranking and Hourly Earnings, 1997-2005
by John E. Buckley, Bureau of Labor Statistics, August 29, 2007.
The table on the next page appears in "Ranking of Full-time Civilian Occupations by Hourly and
Annual Earnings, July 2009 by John E. Buckley (Bureau of Labor Statistics, p. 2) and gives the
top ranked occupations by annual earnings for 2009. This report also includes the rankings of
the bottom occupations.
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ECON 201
Lecture 1
Dr. Bresnock
Hourly Earnings Rank
(4)
Annual Earnings Rank (4)
3
1
1
Annual Earnings (Mean)
Average Annual Hours
Obstetricians and gynecologists
$279,635
2,637
2
Anesthesiologists
271,264
2,400
6
3
Chief executives
192,780
2,271
5
4
Internists, general
181,081
2,009
4
6
Law teachers, postsecondary
152,540
2,119
8
7
Psychiatrists
149,866
1,981
9
8
Dentists, general
145,458
2,049
18
9
Pediatricians, general
126,955
2,240
2
10
Airline pilots, copilots, and flight engineers
125,431
1,110
10
11
Health specialties teachers, postsecondary
124,357
1,805
15
12
Engineering managers
120,429
2,117
20
13
Lawyers
118,241
2,123
26
14
Economists
114,498
2,145
24
15
Computer and Info. system managers
114,064
2,089
16
Securities, commodities, and financial
services sales agents
114,064
2,089
25
17
Computer and information scientits,
research
113,901
2,106
17
18
Physicists
113,817
2,007
16
19
Judges, magistrate judges, and magistrates
109,842
1,935
27
20
Petroleum engineers
109,635
2,074
23
Occupation
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