1. What is Economics All About?
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2. Question from pre-test
The exchange rate between the US dollar and the euro changed from $1=1.50 euros to $1=1.25 euros. Germany uses the euro as currency. This change means that
A.) US goods will be more expensive for Germans
B.) German goods will be more expensive for Americans
C.) There will be an increase in US imports from Germany
D.) There will be a decrease in German imports from the US

3. What is Economics All About?
Freakonomics by economist, Steven Levitt and journalist, Stephen Dubner argue that economics, “is about stripping a layer or two from the surface of modern life and seeing what is happening underneath.”
More than graphs and equations
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4. Everyday Mysteries and Economic Enigmas
Economic enigmas—puzzles or riddles that might be explained through an economic analysis

5. Everyday Mysteries and Economic Enigmas
Economist, Steven Landsburg said this is what economics is all about:
“First it is about observing the world with genuine curiosity and admitting that it is full of mysteries. Second, it is about trying to solve those mysteries in ways that are consistent with the general proposition that human behavior is usually designed to serve a purpose.”
“The Armchair Economist” (1993)

6. Everyday Mysteries and Economic Enigmas
Ex) Why does an economy grow for a long time and then start to shrink?
Ex) Why does popcorn sold at the movies cost more than at the grocery store?
Ex) Why are so many products sold at $2.99 and so few at $2.99 and so few at $3.00?
Economics has a lot to do w/ asking questions that reveal “the hidden side of everything.” (Freakonomics)

7. The Case of The Pampered Chickens
Scientists are constantly looking for ways to improve out lives. Thy have little time to waste on nonsense. Yet a Texas A&M agricultural engineer has spent some of his time inventing a contact lens for chickens. Other scientists have experimented with playing classical music to barnyard animals.
Are these the stereotypical mad scientists? Why would scientists waste their time on contact lenses and Mozart for animals when so much really important work need to be done?

8. The Case of the Pampered Chickens
Handy Dandy Guide:
People choose
People’s choices involve costs.
People respond to incentives in predictable ways.
People create economic systems that influence individual choices and incentives
People gain when they trade voluntarily.
People’s choices have consequences that lie in the future.

9. The Clues: (Note: only some clues are useful in solving the mystery)
Scientists receive billions of dollars to do agricultural research.
The US govt has a variety of programs to keep the price of some agricultural goods artificially high.
There is a scarcity of dollars to do scientific research.
Finding ways to lower the costs of agricultural production enable producers to earn higher profits while lowering prices for consumers.
American chickens produce millions of eggs each year.
The number of farms in the US has been declining for several years—from 6.8 million in 1935 to less than 2 million today
Satellites assist some farmers in providing information about the condition of their crops.
Farmers who are able to increase their efficiency and earn more profits benefit because they may keep most of what they earn by their efficiency

10. Solution:
Clues 4 and 8
Economic thinking suggest that there must be reward for researchers who indulge in such strange behavior. The rules of our economic system are such that individuals who develop new ways to increase productivity may gain rewards for their work. The contact lens research has to do with making egg production more efficient, providing lower costs and high profits to producers, and lower prices for consumers. Contact lens research is one of several experiments being conducted to find ways to encourage chickens to lay more eggs. When chickens wear these colored contacts, they are calmer and tend to peck each other less; in this more peaceful state of mind, they tend to lay more eggs

11. How People Use Limited Resources to Satisfy Unlimited Wants
Econ = traditionally defined as the study of how people— individually and in groups—choose to use their limited resources to satisfy their unlimited wants

12. How People Use Limited Resources to Satisfy Unlimited Wants
Concept goes back to the ancient Greek author Xenophon (wrote Oeconomicus) described how a household should manage its resources
Resource = anything used to produce an economic good or service
Scarcity = everything is limited and exists in finite amounts (workers, minerals, machines, space)
Wants = unlimited (even wealthy want more)

13. How People Use Limited Resources to Satisfy Unlimited Wants
Economics is divided into 2 branches:
Microeconomics—economic decisions made by individuals, households, and businesses
Macroeconomics—workings of the economy as a whole

14. How People Use Limited Resources to Satisfy Unlimited Wants
Alfred Marshall (19th c economist) described economics as “a study of mankind in the ordinary business of life.”

15. The Science of Decision Making
Traditional definition of econ = studying how people choose to use their resources.
When people cannot have what they want, they must make choices
Some economists argue that economics is mainly about how we make these choices
Economics = “science of decision making”

16. The Science of Decision Making
Consumers constantly make decisions
Sandwich or salad for lunch?
Lettuce or spinach?
Tomatoes? Onions? Peppers?
Dressing?
These seem trivial, but what about…
Should you look for a weekend job?
Accept a credit card you got in the mail?
Economists have developed ways of thinking about choices that can lead to better decision making

17. What Is and What Should Be
Economists spend a lot of time describing how things are and why
But what about how to make things better?

18. What Is and What Should Be
Consider 2 questions, which a school board facing a budget crisis might ask of an economic analyst:
What impact will increased enrollment, salary increases, and rising maintenance costs have on next year’s budget?
What actions should we take now to reduce expenses in order to balance next year’s budget?

19. What Is and What Should Be
Q1 = economic analyst would gather facts about the number of new classes needed to cope w/ rising enrollment, salaries, maintenance, etc.
Positive economics

20. What Is and What Should Be
Q2 = economic analyst would not only gather facts but also analyze the various choices the school board has for cutting costs. Having laid out the choices and their possible impacts, the analyst would then make a recommendation to the board on where to cut costs.
Normative economics

21. What Is and What Should Be
Most economists = positive economics
Just analyze
Policy advisors = normative economics
Analyze and give advice

22. Defining Economics Economics is about… Analyzing everyday enigmas
Teaching better decision making
Studying how people use limited resources to satisfy unlimited wants
Making policy recommendations (normative economics)
Analyzing how economies work (positive economics)

23. Student Question
Follow these steps to write a nine-line acrostic poem explaining what economics is about:
Write ECONOMICS vertically. Begin each line w/ a word that starts w/ the appropriate letter.
Each line must help answer the question: What is economics all about?
Include the following terms somewhere in your acrostic: enigma, resource, scarce, science, normative economics, and positive economics