Econ 101

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Economics: intro

Economic questions arise bc we want more than we can get. •Inability to satisfy want: scarcity
Incentives: rewards that encourage action or penalties that discourage action. •Economics studies the allocation of scarce recourses among people •Alfred marshell (1842-1924) shaped macro economics

Joan robinson: “ the main reason to study econ is to avoid being fooled by it

Two main parts:
A) Microeconomics: studying the choice of individual decision makers. And how they interact in markets B) macroeconomics: how the overall economy performs.

2 big questions
1.What, how and for whom do goods and services get produced? 2.When do choices made in self interest align with the social interest?

Answer 1)
what: goods and services are objects that people value and are produced to satisfy human wants •how: factors of production. A) Land: natural recourses. B) labour: work time & effort. “quality of labour” (human capital). C) capital: tools, equipment, machines, computers, buildings.. D) entrepreneurship: human resource hat organizes the above. •For whom: who gets good: services depends on the incomes people earn. oLand=rent

oLabour=wages
oCapital=interest
oEntrepreneurship=profit

Answer 2)
We make choices in self interest
oChoices you think are best for you
Choices that are best for society are said to be in the “social interest” oUses resources efficiently
oDistributes goods “fairly”

When does self-interest align with social interest? (important) •Environmental issues
Bad corporate responsibility

The “Economic” way of thinking

Choice under scarcity => trade offs

Opportunity cost: the highest valued alternative that you give up to get something.

Choices at the “margin”
We look at the tradeoffs “at the margin”

Marginal benefit (MB): benefit from an incremental increase in an activity. Marginal cost (MC): opportunity cost from an incremental increase in an activity.

People respond to incentives
MB>MC=> do more of an activity
MB does less of an activity

Lesson 2

Recap:
Economics
oMicro
oMacro
2 big question
owhat, how, for whom
oself interest vs social interest
opportunity cost
otrade-offs
thinking at the “margin”

Lesson 2

Water vs. diamonds

Water: essential but almost costless
Diamonds: not essential but very costly

What is value?
What gives things value?

Labour theory of value:
the value of a commodity is proportional to the amount of labour that goes into it. Abandoned: ex. Cement lifejacket

Economists think about value differently:
1.the value of something is what you’re willing to give up to get it. 2.Economists think about marginal value instead of total value.

Water is plentiful= marginal value low
Diamonds are scarce= marginal value high

Positive and normative statements
Positive: statements of facts about observable data
Normative: statements about what ought to be. Value judgments

Ex. 20% of teens smoke…
Positive:
Are you more likely to smoke if your parents do?
Does living location affect likelihood of smoking?
Are smoking rates different across education levels?
Self reported reasons for smoking
Do prices affect smoking rates?
Normative:
Kids shouldn’t smoke

Cause and effect:
Just because two things happen together doesn’t mean that one causes the other. Ex: ice cream sales & deaths by drowning
Both related to temperature

Economists try to unscramble cause and effect by building models.

Model: a purposeful simplification of the real world.
Ex: paper airplane
Simplification.
Learn about: aerodynamics, wind structure…
Cant learn about: thrust, fuel capacity, engines…

Maps are models:
Subway map
Lines
Stops
Doesn’t show curves or turns
Road map
Street names
Turns/curves
Satellite photo
Adds detail

Graphs: Reveal relationships between variables

3 main types:
1.Time series
2.Cross...
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