Covered Chapters 1, 2, and 3 of the text.
Central Themes:
Allocating scarce resources.
Study of decision-making processes.
Analyzing consumer choices and firm behaviors.
Economically analyzing problems.
The study relates to personal behavior and decisions.
Focus on:
Understanding your own decision-making.
Redefining actions using economic terminology.
Developing and exploring economic models.
Understanding personal behavior patterns to enhance future decisions.
Ability to participate in discussions regarding:
Policy
Politics
Society
Environmental issues
Joan Robinson Quote: "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."
Awareness of global issues:
Climate change
Plastic pollution
Overfishing
Species loss
Microeconomics:
Focuses on individual households and firm decisions.
Deals with small economic units.
Macroeconomics:
Examines economy-wide phenomena.
Topics include:
Inflation
Unemployment
Economic growth
Key Questions Explored:
Government spending allocation (roads vs. healthcare).
The procrastination phenomenon and solutions.
Discussion on military actions against nuclear threats.
Strategies to combat poverty in South Sudan.
Relationship between unemployment and inflation.
Central Bank interest rate policies.
Positive Economics:
Objective and factual analysis of actual economic behaviors and outcomes.
Statements are verifiable without value judgments.
Example: "Raising the minimum wage will decrease poverty."
Normative Economics:
Subjective and involves value judgments about what economic agents should do.
Used in public policy discussions.
Example: "We should raise the minimum wage."
People Face Trade-offs:
Example: Choosing between living arrangements (e.g., share house vs. on-campus housing).
Analysis of costs (rent, chores) versus benefits (independence, social interaction).
The Cost of Something is What You Give Up:
Opportunity Cost: The value of the best alternative foregone.
Example: Pursuing a university degree includes costs (tuition, lost earnings) and benefits (higher income).
Rational People Think at the Margins:
Focus on marginal changes in decisions.
Example: Deciding on the additional hour of study or coffee consumption.
People Respond to Incentives:
Analysis of behavior in response to incentives.
Example: Parking fines influencing parking behaviors.
Implications for policy design to avoid unintended consequences.
Trade-offs dictate decision-making.
Opportunity costs must be calculated.
Decision-making should consider marginal analysis for optimal results.
Incentives shape behavior and choices.
Methodology Overview:
Identify the problem/question.
Develop a simplified model (theory).
Generate predictions from the model (hypothesis).
Collect data to test the model.
Experimental Economics: Collects causal data but is limited in scope.
Econometrics: Easier access to broader data but challenges in establishing causation.
Definition of an economic model:
Simplification of real-world economic processes.
Aims to illustrate essential factors while disregarding minute details.
Quote by Albert Einstein: "Should be as simple as possible, but not any simpler."
Graphing Basics:
Used to illustrate relationships between two variables.
Types of Relationships:
Direct/Positive (upward slope)
Inverse/Negative (downward slope)
No association (horizontal/vertical line).
Fundamental to market economies:
Supply and demand drive market interactions.
Determine prices and allocation of resources.
Demand is defined as the relationship between price and quantity demanded.
Law of Demand:
Inverse relationship between price and quantity demanded.
If price rises, quantity demanded falls, and vice versa.
Display of demand through tables, graphs, or equations:
Typically linear for simplicity.
Market Demand: Sum of all individual demands for a good/service.
Individual demand curves are summed horizontally to calculate market demand.
Changes can occur through:
Price changes (Type-1 changes: along the demand curve).
Demand relationship changes (Type-2 changes: shifts in the demand curve).
Movements Along the Demand Curve:
Driven solely by price changes.
Example: Price drops leading to an increase in demand.
Shifts of the Demand Curve:
Result of factors altering quantity demanded at all price levels.
For instance:
Changing incomes
Price movement of related goods (substitutes and complements).
Shifts in consumer preferences or expectations.
Understanding these principles is vital for analyzing economic scenarios and decision-making processes.