LECTURE # 1: WHAT IS
ECONOMICS?
The Fundamentals of Economics
I.
INTRODUCTION TO ECONOMICS
A. WHY DO WE STUDY ECONOMICS?
B. WHAT IS THE DEFINITION OF ECONOMICS?
C. WHAT ARE THE TWO KINDS OF ECONOMICS?
I.
INTRODUCTION TO ECONOMICS
A. WHY DO WE STUDY ECONOMICS?
1. PERSONAL REASONS-COLLEGE OR WORK,
CAREER, SALARY, LOCATION
2. POLITICAL REASONS-TAXES, SPENDING, THE
DEBT AND THE DEFICIT (15 TRILLION)
3. BUSINESS REASONS-STOCK MARKET, INTEREST
RATES, THE ECONOMY
I.
INTRODUCTION TO ECONOMICS
B. DEFINITION OF ECONOMICS
1. STUDY OF HOW SOCIETIES USE SCARCE
RESOURCES
2. TO PRODUCE VALUABLE GOODS AND SERVICES
3. AND DISTRIBUTE THEM AMONG DIFFERENT
PEOPLE
I.
INTRODUCTION TO ECONOMICS
C. TWO KINDS OF ECONOMICS
1. MICROECONOMICS-BRANCH OF ECONOMICS
INTERESTED IN INDIVIDUAL MARKETS, FIRMS,
AND HOUSEHOLDS
2. MACROECONOMICS-BRANCH OF ECONOMICS
INTERESTED IN THE PERFORMANCE OF THE
OVERALL ECONOMY
II. THE PROBLEM THAT ALL SOCIETIES
FACE BECAUSE OF SCARCITY
A. THEY MUST ALL ANSWER THREE BASIC
QUESTIONS
B. THEY ANSWER THESE QUESTIONS IN THREE
DIFFERENT WAYS
C. ECONOMIST HAVE CHANGED THE WORLD IN
ATTEMPTING TO ANSWER THESE QUESTIONS
D. DECIDE HOW TO USE FACTORS OF PRODUCTION
E. ALL SOCIETIES MUST CONSIDER THE
PRODUCTION POSSIBILITIES CURVE
II. THE FUNDAMENTAL PROBLEM THAT
ALL SOCIETIES FACE
A. THEY MUST ALL ANSWER THREE BASIC
QUESTIONS
1. WHAT GOODS TO PRODUCE-A SOCIETY MUST
DETERMINE WHAT THEY WILL PRODUCE IN WHAT
QUANTITIES
2. HOW TO PRODUCE THEM-WHO WILL DO THE
PRODUCTION WITH WHAT RESOURCES? (OIL, COAL,
NUCLEAR POWER)
3. AND WHO WILL GET THEM-WHO WILL GET TO USE
THE GOODS PRODUCED? (RICH, MIDDLE CLASS,
POOR)
II. THE FUNDAMENTAL PROBLEM THAT
ALL SOCIETIES FACE
B. SOCIETIES HAVE USED THREE WAYS TO
ANSWER THOSE QUESTIONS
1. MARKET ECONOMIES-SUPPLY AND DEMAND
DETERMINE THE PRICES OF GOODS
2. COMMAND ECONOMIES-THE GOVERNMENT
MAKES ALL DECISIONS ABOUT DISTRIBUTION
AND PRODUCTION
3. MIXED ECONOMICS-A MIXTURE OF THE TWO (
ALL COUNTRIES ARE A MIXTURE, EVEN US)
II. THE FUNDAMENTAL PROBLEM THAT
ALL SOCIETIES FACE
C. ECONOMIST WHO CHANGED THE COURSE OF
HISTORY
1. ADAM SMITH: THE WEALTH OF NATIONS (1776)
FATHER OF MICROECONOMICS
2. KARL MARX: DEFINED
MARXISM/SOCIALISM/COMMUNISM (1800’S)
3. JOHN MAYNARD KEYNES: THE GENERAL THEORY
OF EMPLOYMENT, INTEREST, AND MONEY (1936)
FATHER OF MACROECONOMICS
II. THE FUNDAMENTAL PROBLEM THAT
ALL SOCIETIES FACE
D. FACTORS OF PRODUCTION (INPUTS)
1. LAND-SOMEPLACE TO USE FOR PRODUCTION
2. LABOR-SOMEONE TO DO THE PRODUCING
3. CAPITAL-EQUIPMENT USED TO DO THE
PRODUCING
II. THE FUNDAMENTAL PROBLEM THAT
ALL SOCIETIES FACE
E. THE PRODUCTION POSSIBILITIES FRONTIER
(OUTPUTS)
1. SOCIETIES MUST CHOOSE WHAT TO PRODUCE
FROM THEIR SCARCE RESOURCES
2. SHOULD THEY PRODUCE MORE GUNS OR
BUTTER?
3. SEE THE PRODUCTION POSSIBILITIES CURVE
III. MAKING ECONOMIC DECISIONS
A. QUICK REVIEW
B. TRADE-OFFS AND OPPORTUNITY COSTS
C. MEASURMENTS OF COSTS AND THE COSTBENEFIT ANALYSIS
D. LET THE BUYER BEWARE
III. MAKING ECONOMIC DECISIONS
A. QUICK REVIEW
1. ARE YOU COMPLETELY SATISFIED? DO YOU HAVE
EVERYTHING YOU WANT? THE ANSWER IN NO!
2. WE HAVE UNLIMITED NEEDS AND WANTS
a. NEEDS-GOODS NEEDED FOR SURVIVAL
b. WANTS-EVERYTHING BEYOND SURVIVAL
3. AND ALL RESOURCES ARE SCARCE (ANY GOOD
THAT IS SCARCE IS CONSIDERED AN ECONOMIC
GOOD)
III. MAKING ECONOMIC DECISIONS
B. TRADE-OFFS AND OPPORTUNITY COSTS
1. TRADE-OFFS EXIST WHEN YOU HAVE TO
CHOOSE ONE ALTERNATIVE OVER
ANOTHER.
2. OPPORTUNITY COSTS IS THE NEXT BEST
ALTERNATIVE YOU WOULD HAVE
CHOSEN.
III. MAKING ECONOMIC DECISIONS
C. MEASURMENTS OF COSTS/COST BENEFIT ANAL.
1. FIXED COSTS-COSTS DON’T CHANGE
2. VARIABLE COSTS-CHANGE W/PROD.
3. TOTAL COSTS-FC + VC = TC
4. MARGINAL COSTS-ONE EXTRA UNIT
5. MARGINAL REVENUE-THE EXTRA REVENUE
YOU GET FROM SELLING ONE MORE UNIT
6. MARGINAL BENEFIT-ANY POSITIVE RETURN
7. COSTS-BENEFIT ANALYSIS-AN ECONOMIC
MODEL THAT COMPARES THE MC AND MB OF A
DECISION.
III. MAKING ECONOMIC DECISIONS
D. LET THE BUYER BEWARE
1. STAY INFORMED-DON’T LET THEM PULL
THE WOOL OVER YOUR EYES!
2. THIS INCLUDES KNOWING THE TRICKS
OF THE TRADE!
3. THE ROLE OF THE GOVERNMENT
4. RATIONAL CHOICE-LOGICALLY, WHAT IS
THE GREATER GOOD?
TEST 2 PREPARATION
1. LOOK OVER YOUR KEY WORDS
2. LOOK OVER YOUR QUESTIONS AND
ANSWERS
3. LOOK OVER YOUR NOTES
4. FORMAT
1. 50 QUESTIONS
2. MULTIPLE CHOICE
3. MATCHING
QUIZ # 2: INTRO/SCARCITY
1. NAME THREE GENERAL REASONS AS TO WHY
WE STUDY ECONOMICS.
2. NAME THE TWO BRANCHES OF ECONOMICS
III. MAKING ECONOMIC DECISIONS
3. NAME THE THREE BASIC QUESTIONS ALL
SOCIETIES MUST ASK.
4. NAME THREE KINDS OF ECONOMICS THAT
EXISTS TODAY.
5. NAME THE THREE FACTORS OF PRODUCTION