Introduction The Principles
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Transcript of Introduction The Principles
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IntroductionThe Principles
These slides supplement the textbook, but should not replace reading the textbook
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Misconceptions
AutomationCurrency
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Two Opposing Forces
Globalists vs. Nationalistsor
Collectivists vs. Individualist
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What isMacroeconomics?
Macro means large – it deals with the performance, structure, behavior, and decision making of the whole economy.
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What are some examples of
Macroeconomics?• Inflation• Unemployment• Money and banking• Economic growth• Business cycles
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Who isFriedrich Hayek?
He is an Austrian economist whose main premise is that economic planning will eventually lead to economic stagnation and loss of personal freedom.
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Who isJohn Maynard Keynes?He is an economist who believed that government intervention in a stalled economy may be necessary to stimulate demand for recovery.
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What isopportunity cost?
That which is given up in the best alternative choice when making a decision.
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What are two types of opportunity cost?
FinancialActivity
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What are some examples of
opportunity cost?The money you are giving up to be a student.
An activity you would rather be doing than being in class.
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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
cleaning your room?It’s greater on sunny days than on rainy days
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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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Should you paint the room yourself or hire someone?
If you paint the room yourself, what is your opportunity cost? How much will you pay someone to paint?
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What is the opportunity cost of low interest rates?Retired people and others make less money on their savings.
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What does the term “margin” mean?
Margin means the last unit or the last increment. For example, MR is the revenue received on the last unit of output.
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What ismarginal analysis?
Economists use marginal analysis to predict cause and effect. For example, how many sodas will a person buy when standing in front of a soda pop machine?
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What is an example of marginal analysis?
You will decide to do something if your marginal benefit exceeds your marginal cost
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How many soda pops will a person buy?
A consumer will purchase additional sodas as long as his marginal benefit (on the last unit) is greater than his marginal cost (on the last unit).
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What is leverage?
Leverage is a way of multiplying a gain or a loss.
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What are examples of leverage?
•Buying stock on the margin
•Borrowing money to grow a business
•Hiring employees•Recording this lecture
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What is Price Elasticity of Demand?
A measure of demand responsiveness to a change in price.
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When does something face an elastic demand curve?
When a business owner raises the price of his product and total revenue decreases.
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When does something face an inelastic demand curve?
When a business owner raises the price of his product and total revenue increases.
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What ismoral hazard?
Moral hazard exists when someone has a tendency to invest in something or pursue an activity without regard to potential losses.
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What isan example of moral hazard?
After 2008 large financial firms were bailed out by the government shielding them from their greed and protecting them from losses.
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What isa consequence of
moral hazard?To minimize moral hazard the government has increased regulations over large corporations.
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What is rent seeking?
Resources are used for personal gain without benefiting society.
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What is an example of rent seeking?
Companies hire lobbyists to petition Congress for favors.
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What is theLaffer Curve?
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“Anyone can arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury …”Judge Learned Hand
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What is stock and flow of
economic analysis?
Flow is time dimensional – Stock is a point in time.
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What are other names for stock
and flow? Short run vs. long runStatic vs. dynamic
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Will an increase in taxes lead to an
increase in government revenue?In the short run yes, in the long run maybe not.
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What is Economies of Scale?
As a company grows its costs decrease up to a certain point.
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Should a farmer pay $50,000 for a
new tractor?
That depends on the size of the farmer’s operation.
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Why do large corporations favor
minimum wage laws and small firms do not?
Economies of scale differences
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What is price, cost, revenue and profit?
• Price is what consumes pay• Cost is what producers pay• Revenue is total money in• Profit is money in minus money out
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What is Gross Domestic Product?
The dollar value of all new and final goods and services produced in a given year.
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How do we measure growth?
Gross Domestic Product (GDP)
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