Lecture01

Foundations of Social Sciences: Economics

Lecture Overview

  • Course: ECON 1001AEF / A121F

  • Institution: Hong Kong Metropolitan University

  • Lecture 01: Getting Started

Agenda

  • Definition and Questions

  • Scarcity

  • Economics Defined

  • The Economic Way of Thinking

  • A Choice is a Tradeoff

  • Cost: What You Must Give Up

  • Benefit: What You Gain

  • Rational Choice

  • Choices Respond to Incentives

Learning Outcomes

After today's lesson, you will be able to:

  1. Define economics and the questions economists address.

  2. Explain the ideas defining the economic way of thinking.

Scarcity

  • Economic questions arise due to human wants exceeding available resources.

  • Scarcity necessitates making choices among available alternatives.

  • Choices depend on the incentives faced.

Definition of Economics

  • Economics: The social science studying choices made by individuals, businesses, governments, and societies in coping with scarcity, considering incentives influencing these choices.

    • Microeconomics: Studies individual and business choices and their interactions with government.

    • Macroeconomics: Studies aggregate effects of choices on national and global economies.

Major Economic Questions

  1. How do choices determine what, how, and for whom goods and services are produced?

  2. When do self-interested choices promote social interest?

Goods and Services

  • Goods: Objects valued and produced to satisfy wants.

  • Services: Actions valued and produced to satisfy wants.

  • Considerations: What, how, and for whom goods/services are produced?

Self-interest vs. Social Interest

  • Self-interest: Choices best for individual decision-makers.

  • Social interest: Choices beneficial for society as a whole.

Example of Self-interest vs. Social Interest

  • Self-interest of AI Companies:

    • Innovation for competitive edge.

    • Focus on profitable AI applications.

  • Promotion of Social Interest:

    • Technological advancements boosting societal progress.

    • Creation of jobs and addressing global challenges (e.g., climate change).

Economic Ideas

  1. Choice is a Tradeoff: Selecting alternatives due to scarcity.

  2. Cost: What you must sacrifice for an option.

  3. Benefit: What you gain from a choice.

  4. Rational Choices: Decisions made by comparing costs and benefits.

  5. Marginal Choices: Decisions regarding incremental advantages.

  6. Incentive-Driven Choices: Choices influenced by potential rewards or consequences.

Rational Choice

  • A rational choice utilizes available resources to best achieve one's objectives by comparing costs and benefits.

Thinking at the Margin

  • Marginal Cost (MC): Opportunity cost of increasing an activity by one unit.

  • Marginal Benefit (MB): Gain from one additional unit of something.

Scientific Method in Economics

  • Economists utilize the scientific method to explore cause and effect based on observed facts.

Economic Models

  • Simplifications of complex realities to enhance understanding (e.g., assumptions about trade).

Types of Economic Statements

  • Positive Statements: Descriptive statements subject to confirmation by evidence (e.g., impact of minimum wage laws).

  • Normative Statements: Prescriptive statements suggesting what ought to be (e.g., advocating for minimum wage increases).

Evaluating Educational Decisions

  • Consider the balance of costs (tuition, study costs, lost earnings) vs. benefits (enjoyment, future income).

  • Not always best: Case studies (e.g., Gates, Jagger) illustrate individual decisions based on perceived opportunity costs.

References

  • Bade, R. & Parkin, M. (2014). Essential Foundations of Economics, Global Edition (7th ed.). Person.

  • Mankiw (2018). Principles of Economics (8th ed.). Cengage.