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Economics

Economics. Introduction/Overview 7 Oct 2010. Agenda. Introductions 3 * 5 Cards Name “Callsign/Nickname” for grading purposes E-mail Who you are Home town Where you work Why you are taking this course Syllabus Review. Agenda (continued). What is “Economics”? Influential Economists

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Economics

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  1. Economics Introduction/Overview 7 Oct 2010

  2. Agenda • Introductions • 3 * 5 Cards • Name • “Callsign/Nickname” for grading purposes • E-mail • Who you are • Home town • Where you work • Why you are taking this course • Syllabus Review

  3. Agenda (continued) • What is “Economics”? • Influential Economists • Math/Graphing Introduction • Conclusion • Note: 10 minute breaks at the top of the hour

  4. Keys to Success • Keep up with the reading • Interact • Ask questions/seek help

  5. ECONOMICS!

  6. Economics Defined • Mankiw: “Economy comes from Greek word Oikonomos, which means ‘one who manages a household’” • How does one manage a household? • By making decisions! Economics is the “science of scarcity”….a DISMAL SCIENCE!

  7. ?????Why????? • If Economics is a social science….. • (And it’s dismal)…… • Why study it? • What’s in it for me?

  8. The Power of Markets! • Markets have made SOCIETY much better off • In the 20th Century: • US life expectancy rose from 47 years to 77 • Infant mortality declined by 93% • Numerous diseases eradicated: Polio, Tuberculosis, Typhoid, etc • Markets/Free Market Economy are responsible “Economy is the art of making the most of life. Economics is the study of How we do that!”….Gary Becker (Nobel Prize 1992)

  9. Essential Foundations • #1. Individuals will act to make themselves as well off as possible • Utility • Maximizing utility is synonymous with acting selfishly? • No • Trade-Offs • Every decision we make involves some sort of trade-off • We may trade off utility now against utility in the future The cost of something is what you must give up in order to get it

  10. Essential Foundations (cont) • #2. Firms (the guy selling used watches on eBay or Microsoft) attempt to maximize their profits • A profitable firm is like a chef who can buy $30 worth of groceries and turn it into a $100 meal • Firms have decisions: • What to produce • How much to produce • What price to sell

  11. The Market Firms Come together Consumers

  12. What Drives the Market? • Price • Price settles the point where the number of items for sale exactly matches the number of that good consumers want to buy

  13. How the Market Works • The Market is amoral • It rewards scarcity • It does not provide the goods we need, but it does provide the goods we want to buy • Prices are used to allocate scarce resources • Who gets Superbowl Tickets? • Markets are self-correcting • Fixed prices lead to other forms of competition • Every market transaction makes us better off

  14. Markets….Parting Remarks • Good system, but imperfect • Free Market System is much like our system of Individual Liberties • US Democracy • System that forces us to choose vaccines over doggie birthday cakes is oppressive • Communism (command economy) failed • Controlled the lives of its citizens

  15. Mankiw’s Ten (10) Principles of Economics • People face trade-offs • Cost of something is what you give up to get it • Rational people think at the margin • People respond to incentives • Trade can make everyone better off • Markets are usually a good way to organize economic activity • Governments can sometimes improve market outcomes • A country’s standard of living depends on its ability to produce goods and services • Prices rise when the government prints too much money • Society faces a short-run trade-off between inflation and unemployment

  16. Influential Economists

  17. Adam Smith (1723 – 1890) • Father of Economics • Logic Professor • An Inquiry Into the Nature and Causes of the Wealth of Nations • Self Interest • Division of Labor • Function of Markets • Laissez-Faire Economy • Died: 1790 • Gave a lot of money to charity “Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.” http://www.lucidcafe.com/library/96jun/smith.html

  18. Thomas Malthus (1766-1834) • Ordained Minister in the Church of England • Had a lot of time to spend debating with his father • Essay on Population (1798) • Population growth would outstrip agricultural resources • Everyone would starve • Gloom and Doom • Became full time professor of History and Political Economy • England’s first Academic Economist I happened to read for amusement Malthus on Population, and being well prepared to appreciate the struggle for existence which everywhere goes on (Charles Darwin) http://www.ucmp.berkeley.edu/history/malthus.html

  19. David Ricardo (1772 – 1823) • Born of Portugese –Jewish heritage • Fled to England • Began working in London Stock Exchange at age 14 • Astute thinker • Elected to Parliament in 1819 • Read Wealth of Nations by chance • Went toe-to-toe with Malthus • Best known for “Comparative Advantage” • Specialization should occur in the area where one nation (or entity) holds a cost advantage "Gold and silver, like all other commodities, are valuable only in proportion to the quantity of labour necessary to produce them and bring them to market” http://homepage.newschool.edu/het//profiles/ricardo.htm

  20. Vilfredo Pareto (1848-1923) Italian Aristocrat Economist/Engineer Mechanical equilibrium from Engineering led to conclusions in Economic theory Challenged concept of Utility Advanced theory of Preferences and therefore Micro Economics Pareto Principle 80% of problems arise from 20% of the defects

  21. Karl Marx 1818-1883 Born to middle class family in Germany Studied law, then moved into journalism Moved to France and became enthralled with utopian society of cooperative production Published Das Kapital Deported from France and England Proponent of Revolution

  22. Frederick Taylor (1856-1915) Studied workplace throughout his life Ultimate goal: create efficient environment Father of Scientific Management Workers incapable of understanding tasks; they had to be supervised Harvard based MBA program on his principles

  23. John Maynard Keynes (1883-1946) Born in England Lived through depression Made and lost fortunes speculating Foundation of learning the hard way Challenged economic thought during the period—output is determined by demand Advocated government intervention Theories behind FDR/New Deal ecoonomics

  24. Milton Friedman (1912-2006) Founder of “Chicago School” Challenged Keynesian economics Social responsibility of business is to increase its profits Nobel Prize in 1976 Ideas led to Federal Reserve’s power in monetary policy

  25. Allen Greenspan (1926-Present) • Musician—played Clarinet • Studied Economics at Columbia, went on to Graduate with PhD from NYU • PhD dissertation (which was pulled) focused on housing bubble • Served as Chairman of Federal Reserve from 1987-2006

  26. Ben Bernanke (1953- Present • PhD from MIT • Current Chairman of Federal Reserve (on second term) • Student of Great Depression • Professor of Economics at Princeton University since 1985

  27. N. Gregory Mankiw (1958- Present) • Author of your textbook • PhD from MIT • “New Keynesian” • Critics include Paul Krugman • 2003-2005 Served as Chairman, Council of Economic Advisers to George Bush • Has been a vigorous critic of stimulus package http://gregmankiw.blogspot.com/

  28. Paul Krugman (1953- Present) • PhD from MIT • Widely cited and published • Considered #6 out of 100 top intellectuals • Theory of New Trade • Advocates protectionist measures • Nobel Prize 2008 • “Great Unraveling” • Bush policies led to economic turmoil http://krugman.blogs.nytimes.com/

  29. Steven Leavitt (1967 – Present) • PhD from MIT • Professor at University of Chicago • Author of Freakonomics • Controversial studies • Crime • Society • Abortion http://freakonomics.blogs.nytimes.com/

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