+
EVSC 239 - welcome
Project: agricultural please
Same website: forthcoming
+
2
Readings…

Two readers (Reader 1.a and Reader 1.b) thus far at the
bookstore

Familiarize yourself with them. We’ll be flipping through
both.
+
3
Economics in Context: Goals,
Issues, and Behavior

What is economics?

economics: the study of the way people organize themselves
to sustain life and enhance its quality
+
4
The Goals of Economic Activity
Positive vs normative questions

Positive questions: how things are

Normative questions: how things should be

Examples?

“Defining poverty is both a positive and a normative task. …It
requires us to decide whether poverty should be defined in
terms of people’s opportunities in life, or only with respect to
what they have made of those opportunities; whether a
definition should look only at what people possess as private
property, or should also take into account access to goods
and services that are provided by the society.”
+
5
What for?

In discussing goals  need to start with normative question.

What is economic activity FOR?

Intermediate and final goals


A final goal requires no further justification: it is an end in itself

An intermediate goal is something that is desirable because its
achievement will bring you closer to your final goal(s)
Wealth is whatever confers the ability to produce and
procure valued goods and services. What does that mean?
+
6
“Wealth”… “Efficiency”

Recently: …efficiency as a key goal in economic
policymaking

Efficient process: uses the min value of resources to achieve
desired result

An efficient use of resources is one that does not involve any
waste. Inputs are used in such a way that they yield the
highest possible value of output, or a given output is
produced using the lowest possible value of inputs.
+
7
Your turn…

Can market values always provide a standard of value?

What are some things we value?

What is your final goal? What are your final goals?

From whose point of view should economics be taught?
(Traders? Consumers? Producers? Other?)
+
8
Our assumption

Here: we start with individuals

We assume that most normal people want to have happy,
pleasant lives in a healthy social and physical environment –
and that most people would like to contribute to ensuring
that the social and physical conditions for a good life can
continue into the future.

Is this a reasonable starting point?
+
9
So what is well-being?

Well-being is a shorthand term for the broad goal of
promoting the sustenance and flourishing of life

What are some final goals?
+
10
Sample list of final goals

Satisfaction of basic physical needs;

happiness;

realization of one’s potential;

fairness (what is ‘fair’?);

freedom in economic and social relations;

participation in social decision making;

a sense of meaning in one’s life;

good social relations;

ecological balance
+
11
Economics and well-being

An economic actor (economic agent) is an individual, group, or
organization that is involved in the economic activities of
resource maintenance or the production, distribution, or
consumption of goods and services. Examples?

Negative externalities are harmful side effects, or unintended
consequences, of economic activity that affect persons, or
entities such as the environment, that are not among the
economic actors directly responsible for the activity. Examples?

Positive externalities are beneficial side effects, or unintended
consequences, of economic activity that accrue largely to
persons or entities that are not among the economic actors
directly involved in the activity. Examples?

Transaction costs are the costs of arranging economic activities
+
12
Issues that define economics

Four essential economic activities. Any activity is ‘economic’
when it touches on 1 or more of 4 important tasks

Resource maintenance means managing natural, produced,
human, and social resources so that their productivity is
sustained [note: sometimes means not engaging in production,
consumption, or distribution]

Production: conversion of resources into products – into goods
or services

Distribution: the sharing of products and resources among
people (exchange: trading one thing for another; transfer: giving
something, with nothing specific expected in return)

Consumption is the final use of a good or service. Example?
+
13
3 basic economic questions

• What should be produced, and what should be
maintained?


• How should production and maintenance be
accomplished?


What kinds of products should be made? How much of each?
What resources need to be preserved?
By whom and using what kinds of resources, technologies
and methods?
• For whom should economic activity be undertaken?

What are the principles and practices that will determine
how the produced goods and services are distributed among
different people?
+
14
Let’s talk

The admissions office at UOB decides who will be admitted
and who will not be. Is this an economic activity? Of what
kind?
+
15
Motivation and behavior

Economists generally assume that people engage in purposeful
(or instrumental) behavior - actions taken with the expectation
that these acts will lead to desired goals.

Extrinsic motivations arise for reasons “outside” of a person,
such as doing an action for a reward or to avoid punishment.

Intrinsic motivations arise for reasons “inside” of a person, such
as doing an action for enjoyment or because of ethical values.

Economists thus talk of various incentives set up by systems of
reward and punishment. Examples?


Incentive: a reward or punishment that motivates action
What motivates us?
+
16
Self-interest, altruism, and the
common good

Many economists believe that the goal of societal well-being can be
obtained if individuals act in a way that promotes their own selfinterest (motive for action based on the goal of improving one's own
well-being ).



In a famous statement from The Wealth of Nations, written in 1776, Adam Smith
declared, “It is not from the benevolence of the butcher, the brewer, or the baker
that we expect our dinner, but from their regard to their own interest.”
This has been used as an ethical justification for following unfettered economic
self-interest.
But: Adam Smith, in his other most notable work, The Theory of Moral Sentiments,
addressed at great length the need to take into account the welfare of others

Opposite: altruism (motive for action that is especially concerned with
the well-being of others)

Common good: motive for action with the goal of improving social wellbeing, including one’s own well-being
+
17
Self-interest

Even here…Many economists believe that the goal of societal
well-being can be obtained if individuals act in a way that
promotes their own self-interest.

Why could this be a problem?

inaccurate information, externalities, or ethics.
+
18
Ultimatum game

2 people are told they will be given a sum of money, say $20,
to share. One person gets to propose a way of splitting the
sum. The second person can’t offer any input to this decision
but gets to decide whether to accept the offer or reject it. If
the second person rejects the offer, both people will walk
away empty-handed. If the offer is accepted, they get the
money and split it as planned.

Break into teams of two

Bonobos…
+
19
Behavior: Habit, Constraint, or
Choice?

What did you eat at your last meal? Why did you eat that, in
particular?

Habitual behavior is repetitive behavior that involves
minimal thought and is often based on social custom.

Why?...

People’s behavior is often limited by constraints (limits set
by others or by physical circumstances).

Choice behavior involves making a selection from a range of
alternatives.
+
20
Rationality, Goals, and Information

“How do people choose?”

Economists generally assume that people have the capacity to
make rational choices. [Freud’s family argued that people are
irrational and need to be conditioned to make the right choices:
hence, advertising/marketing]

Rational choices are choices that would normally be expected to
move people towards their goals. This doesn’t mean that people
always make perfect decisions because sometimes their
information or decision-making may be imperfect.

Rationality means that people weigh the costs and benefits of
alternative actions, relative to their goals, and not that people
always make perfect decisions.
+
21
Optimization vs. Bounded
Rationality

Optimizing means to choose the single alternative that best achieves
what is desired.

The psychologist Herbert Simon demonstrated that it is normally not
possible for people to optimize because they can’t obtain information
on the full range of alternatives. Instead, people tend to satisfice choosing an outcome that would be satisfactory and then seeking an
option that at least reaches that standard.

Another behavioral explanation other than optimizing is meliorating –
starting from a current level of achievement and continuously trying to
do better.

Satisficing and meliorating are examples of “bounded rationality” –
people generally consider only a subset of all the alternatives.

[see handout]
+
22
Now or later?

What time frame do people consider when they have the
chance to make significant choices about how they are going
to behave?

A high discount rate means that future benefits are very
much discounted or diminished.

A low discount rate means that later benefits loom large.

Different people have different discount rates, and different
rates may be appropriate to different circumstances – there
is no one “correct” rate.

Environmentally – what does this mean?