LECTURE # 1: WHAT IS ECONOMICS? The Fundamentals of Economics

INTRODUCTION TO ECONOMICS WHY DO WE STUDY ECONOMICS? WHAT IS THE DEFINITION OF ECONOMICS? WHAT ARE THE TWO KINDS OF ECONOMICS?

INTRODUCTION TO ECONOMICS WHY DO WE STUDY ECONOMICS? PERSONAL REASONS-COLLEGE OR WORK, CAREER, SALARY, LOCATION POLITICAL REASONS-TAXES, SPENDING, THE DEBT AND THE DEFICIT (15 TRILLION) BUSINESS REASONS-STOCK MARKET, INTEREST RATES, THE ECONOMY

INTRODUCTION TO ECONOMICS DEFINITION OF ECONOMICS STUDY OF HOW SOCIETIES USE SCARCE RESOURCES TO PRODUCE VALUABLE GOODS AND SERVICES AND DISTRIBUTE THEM AMONG DIFFERENT PEOPLE

INTRODUCTION TO ECONOMICS TWO KINDS OF ECONOMICS MICROECONOMICS-BRANCH OF ECONOMICS INTERESTED IN INDIVIDUAL MARKETS, FIRMS, AND HOUSEHOLDS MACROECONOMICS-BRANCH OF ECONOMICS INTERESTED IN THE PERFORMANCE OF THE OVERALL ECONOMY

II. THE PROBLEM THAT ALL SOCIETIES FACE BECAUSE OF SCARCITY THEY MUST ALL ANSWER THREE BASIC QUESTIONS THEY ANSWER THESE QUESTIONS IN THREE DIFFERENT WAYS ECONOMIST HAVE CHANGED THE WORLD IN ATTEMPTING TO ANSWER THESE QUESTIONS DECIDE HOW TO USE FACTORS OF PRODUCTION ALL SOCIETIES MUST CONSIDER THE PRODUCTION POSSIBILITIES CURVE

II. THE FUNDAMENTAL PROBLEM THAT ALL SOCIETIES FACE THEY MUST ALL ANSWER THREE BASIC QUESTIONS WHAT GOODS TO PRODUCE-A SOCIETY MUST DETERMINE WHAT THEY WILL PRODUCE IN WHAT QUANTITIES HOW TO PRODUCE THEM-WHO WILL DO THE PRODUCTION WITH WHAT RESOURCES? (OIL, COAL, NUCLEAR POWER) 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 MARKET ECONOMIES-SUPPLY AND DEMAND DETERMINE THE PRICES OF GOODS COMMAND ECONOMIES-THE GOVERNMENT MAKES ALL DECISIONS ABOUT DISTRIBUTION AND PRODUCTION 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 ADAM SMITH: THE WEALTH OF NATIONS (1776) FATHER OF MICROECONOMICS KARL MARX: DEFINED MARXISM/SOCIALISM/COMMUNISM (1800’S) JOHN MAYNARD KEYNES: THE GENERAL THEORY OF EMPLOYMENT, INTEREST, AND MONEY (1936) FATHER OF MACROECONOMICS

II. THE FUNDAMENTAL PROBLEM THAT ALL SOCIETIES FACE FACTORS OF PRODUCTION (INPUTS) LAND-SOMEPLACE TO USE FOR PRODUCTION LABOR-SOMEONE TO DO THE PRODUCING CAPITAL-EQUIPMENT USED TO DO THE PRODUCING

II. THE FUNDAMENTAL PROBLEM THAT ALL SOCIETIES FACE E. THE PRODUCTION POSSIBILITIES FRONTIER (OUTPUTS) SOCIETIES MUST CHOOSE WHAT TO PRODUCE FROM THEIR SCARCE RESOURCES SHOULD THEY PRODUCE MORE GUNS OR BUTTER? SEE THE PRODUCTION POSSIBILITIES CURVE

III. MAKING ECONOMIC DECISIONS QUICK REVIEW TRADE-OFFS AND OPPORTUNITY COSTS MEASURMENTS OF COSTS AND THE COST- BENEFIT ANALYSIS LET THE BUYER BEWARE

III. MAKING ECONOMIC DECISIONS QUICK REVIEW ARE YOU COMPLETELY SATISFIED? DO YOU HAVE EVERYTHING YOU WANT? THE ANSWER IN NO! WE HAVE UNLIMITED NEEDS AND WANTS NEEDS-GOODS NEEDED FOR SURVIVAL WANTS-EVERYTHING BEYOND SURVIVAL 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 LOOK OVER YOUR KEY WORDS LOOK OVER YOUR QUESTIONS AND ANSWERS LOOK OVER YOUR NOTES FORMAT 50 QUESTIONS MULTIPLE CHOICE MATCHING

QUIZ # 2: INTRO/SCARCITY NAME THREE GENERAL REASONS AS TO WHY WE STUDY ECONOMICS. NAME THE TWO BRANCHES OF ECONOMICS NAME THE THREE BASIC QUESTIONS ALL SOCIETIES MUST ASK. NAME THREE KINDS OF ECONOMICS THAT EXISTS TODAY. NAME THE THREE FACTORS OF PRODUCTION III. MAKING ECONOMIC DECISIONS