1. E C O N O M I C S PARKINBADE Lecture 1 10 September 1998

2. How to Study Economics?  Understand today’s economic problems  but today’s problems different from yesterday’s  specific knowledge quickly becomes outmoded  Develop general understanding; analytical framework  our approach

3. Course Goal  Not to teach you what to think, but HOW TO THINK about economics

4. Analytical Framework  Economics  History  Theory  Measurement  Policy continued

5. Analytical Framework  History --  isolate historically unique features of our economic system  Theory --  abstract from details reality those features essential for understanding  roadmap example continued

6. Analytical Framework  Measurement --  theory brought into dialogue with facts  test how well theory explains, helps understand reality  Policy --  once we can understand and explain, can we change, improve the world

7. Analytical Framework  Economics distinguishes between  positive statements — about what is; tested by checking against facts  normative statements — about what ought to be; depends on values, cannot be tested continued

8. Analytical Framework  Important values, policy objectives for economics  Efficiency  Equity  Growth  Stability  Microeconomics course focuses on positive statements and efficiency objective continued

9. Analytical Framework  Economics  History  Theory  Measurement  Policy

10. Economic Problem  Economic problem  providing for the material well-being of society  Division of Labour  specialization  exchange  interdependence continued

11. Economic Problem  Economic tasks  production --  organize economic system yielding sufficient production for survival  mobilize effort; allocate effort viably  reproduction --  distribution of income so more production can occur

12. Solutions to Economic Problem  Solutions to the Economic Problem  Tradition  Command  Market continued

13. Solutions to Economic Problem  Tradition Solution  production and reproduction based on past traditions  tasks organized by heredity, produce distributed by tradition  Command Solution  production and reproduction organized by authority of economic commander-in-chief continued

14. Solutions to Economic Problem  Market Solution  production and reproduction result from individuals pursuing own self interest, interacting in institutional context of markets  not easily explained like tradition and command economies  complex interdependence  requires history and theory for understanding

15. Pre-Market Solutions to Economic Problem  Ancient Rome and Greece  traditional agriculture  slavery (command)  wealth (surplus) from power  disdain of economic activity continued

16. Pre-Market Solutions to Economic Problem  Feudalism  manorial estate (tradition and command)  barter economy  wealth from power  guilds (tradition)  dominance of church  disrepute of gain  economy embedded in social relationships

17. Market Solution to Economic Problem  Market Society  economy separated out from other social relationships  labour, land and capital take on new meanings  how does this system of “free” individuals, each pursuing own self-interest, solve economic problem rather than degenerating into chaos?