Post on 31-Mar-2015
Chapter 1 Why Economics?
These slides supplement the textbook, but should not replace reading the textbook
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Who is an economist?Persons learned in the science and practices of economics
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What is the economic problem?
Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?
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What assumption do we make?
People behave in accordance to their own self interest
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What is rationale self interest?
People select the alternatives they expect will yield the most satisfaction and happiness
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What isopportunity cost?
That which is given up in the best alternative when a choice is made
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How is opportunity cost estimated?
Opportunity cost is subjectively estimated by the individual decision maker
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What is the opportunity cost of a city to use local taxes to pay for a park?
The best alternative foregone by not building the park
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What is your opportunity cost of attending college?
If you make $300 a week, but you expect you could make $500 without school - your opportunity cost is $200
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What is the opportunity cost of
cleaning your room?It’s greater on sunny days than on rainy days
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What ismarginal analysis?
You will decide to do something if your marginal benefit exceeds your marginal cost
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What is macroeconomics?The study of the economic behavior of entire economies
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What is microeconomics?
The study of the economic behavior in particular markets, such as the market for computers
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What is a market?A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms
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What is special about the market?Unless there is a market transaction we are not concerned about it in economics
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What is a good?A tangible item that is used to satisfy wants
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What is a service?
An intangible activity that is used to satisfy wants
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What is afree good or service?
There is enough of a good or service to go around to everyone who wants it for free
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What is a Scarce Good or Service? There is not enough of a good or service to go around to everyone who wants it for free
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When is a good or service scarce?
When the amount people desire exceeds the amount available to them at a zero price
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What is a resource?Something that is used to produce goods and services
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What are some examples of resources?
LandLaborCapitalEntrepreneurship
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What is land?Plots of ground and other natural resources used to produce goods and services
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What is labor?The physical and mental efforts of humans used to produce goods and services
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What is capital?Buildings, equipment, and human skills used to produce goods and services
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What is human capital?
The skills used to work with capital
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What does money allow you to do?
Make choices
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What isentrepreneurial ability?Managerial and organizational skills combined with the willingness to take risks
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Entrepreneur characteristics?
has a dreamovercomes obstacles delayed gratification is a risk taker can duplicate himself strives to be unimportant
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Why can the entrepreneur have more
free time, make more money, and have more
security than an employee?
A business owner can duplicate himself
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How can you duplicate yourself?•employees• rental property•savings in a bank•owning shares of stock
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Why is Duplication the flip side of debt?Life is either an adding to or a taking away, growth is adding to, not growing is taking away
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What are two basic laws of entrepreneurship?
What ever you have you will be given more, and what you do not have will be taken away
Whatever you give away you keep and whatever you keep you lose
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Is economics more like history or math?
It is like math, know the vocabulary, understand the concepts, and use your logical thinking
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What is the rule of man?
Events are determined by whoever is in authority
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What is the rule of law?
Events are determined by law
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What is a democracy?The majority rules
What is a danger in a democracy?
The majority can take everything away from the minority
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What is a republic?A political system based on law
What is the purpose of a republic?
To protect the minority from the majority
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What is a democracy in a republic?
A political system where there is a balance between a democracy and a republic
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What is a positive economic statement?A statement that can be proved or disproved by reference to facts
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What is a normative economic statement?A statement that represents an opinion, which cannot be proved or disproved
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More or less government?
Choices are not clear cut
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Why did Europeans come to America in
1492?
To flee the autocratic policies of government and the catholic church
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Why was America a colony of England in the 1600s and 1700s?
To enrich England in terms of gold and silver
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What is Mercantilism?
The belief that gold and silver constituted a nation’s wealth
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What role did the government play
under mercantilism?Government had to play a large role in economic affairs, a strong central government was supported
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How does a country enrich itself?
It encourages exports and discourages imports
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What was the East India Company?
A company which the English government gave monopoly power to buy certain raw materials from Americans at low prices
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What is a good book on the subject?
Merchant Kings: when Companies Ruled the World, 1600-1900 by Stephen R Bown
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What else did the English government do?
It forbid Americans from manufacturing, therefore forcing them to purchase goods from England
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What were the Grenville and Townsend Acts?
In the 1700s taxes were levied on colonial imports and British businesses were given preferential treatment
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What was the colonialists main
concern?Taxation without representation which was considered a violation of man’s natural rights
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What are the main ideas of the
Declaration of Independence 1776?
Our rights come from God and that liberty is fragile
Declaration of Independence
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What was the main idea of the Wealth
of Nations by Adam Smith 1776?Everyone would benefit from less government and free trade
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What was the Treaty of Paris in 1783?
England recognized America’s sovereignty
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According to Adam Smith, what is the
invisible hand?Self interest will guide the economy to produce what we want and offer us reasonable prices
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How can consumers buy things at
reasonable prices?
Competition whereby lower costs will lead to lower prices and more profit
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Can we expect steady economic growth and
prosperity?No, slumps are as much a part of events as prosperity – we should let the winners win and the losers lose
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What role do prices play in a free
market system? convey information give incentives determine the distribution of income
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What is the biggest threat to
our freedom?Centralized power
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How does our constitution protect
our freedom?It spreads the allocation of power among several agencies, it decentralizes the power base
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What are the three branches of
government? President Congress (house/senate) Supreme Court
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What is the unofficial fourth branch of our
political system?
A free press
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What causes unemployment?
Excessive inventory
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What led to the excessive inventory
in the 1920s?Businessmen’s greed– the idea was to keep wages low and prices high
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What led to risky investments in
the 1920s?
Excessive profits
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What events in the early 30s led to the Great Depression?
Smoot – Hawley Tariff Decrease in the money supply
Increase in taxes
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What was the unemployment rate in the Great Depression?
It was 25 percent and lasted the whole decade of the 1930s
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What was the role of President
Franklin Roosevelt in the 1930s?
His New Deal policies led to a larger role of government in economics affairs
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What role did John Maynard Keynes
play in the 1930s?His book the General Theory of Employment, Interest, and Money 1936 led to a larger role of government in economic affairs
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What was the Depression of
1920 like?It was as severe as the Depression of the 1930s but it was very short
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How big is our national debt?
> $15 trillion >$49,000 per citizen
>$136,000 per tax payerDebt Clock
END