lecture recording on 18 January 2025 at 11.12.17 AM

Introduction to Economic Phenomena

Economists play dual roles: explaining phenomena and advising policy.
The objective nature of economists: seeking to explain without bias.
Use of the scientific method: developing theories, collecting data, and refining those theories continuously.

The use of models simplifies complex realities (e.g., maps vs. real geography).
Assumptions help create clear analytical frameworks for understanding economic behavior.

Represents economic interactions between firms (producers) and households (consumers).
Two primary markets:
- Goods and Services Market: Households buy products from firms.
- Factors of Production Market: Households provide labor to firms.
Flow of money (green arrows) indicates revenue and wages; flow of goods (red arrows) shows physical products.

Shows trade-offs in production given limited resources.
Assumption of two goods (e.g., airplanes and soybeans).
Illustrates maximum outputs with available factors of production (labor, land, technology).
Opportunity Cost: The cost of what is forgone when increasing production of one good over another.
Marginal decisions based on efficiency defined along the PPF.

Demand: Relationship between price and quantity demanded, typically inversely related.
- Changes in demand due to factors such as income, number of buyers, consumer preferences, and related goods (substitutes vs. complements).
Supply: Quantity sellers are willing to sell at various prices, generally positively related to price.
Market equilibrium occurs where quantity supplied equals quantity demanded.

Positive statements: can be tested and validated (e.g., minimum wage laws causing unemployment).
Normative statements: opinions based on value judgments (e.g., government should raise minimum wage).

Trade increases efficiency and potentially overall wealth of society based on comparative advantage (producing at the lowest opportunity cost).

Measures overall economic production as the market value of all final goods and services produced within a country in a given period.
Different approaches to measuring GDP: income vs. expenditure methods.
- Consumption: Largest component of GDP, includes household spending.
- Investment: Spending on capital goods and new housing.
- Government Purchases: Does not include transfer payments but covers all government spending on goods and services.
- Net Exports: Exports minus imports, showing international trade impact.

Measurement of unemployment based on proportion of unemployed workers actively seeking work in the labor force.
Various demographic disparities in unemployment rates (age, education, race).

Inflation measured by the Consumer Price Index (CPI): percentage changes in a basket of consumer goods.
Other measures include the GDP deflator and the Personal Consumption Expenditure (PCE) index.
Inflation impacts purchasing power and overall economic stability.

Financial markets facilitate the connection between savers (suppliers of funds) and borrowers (demanders of funds).
Role of the Federal Reserve: regulate banking and control money supply through monetary policy.
Interest rates (price of loanable funds) are influenced by actions of the Federal Reserve, affecting overall investment and growth.

Short-run focused on variable labor while capital (fixed inputs) remains constant.
Total Cost: Fixed costs (constants) plus variable costs (changing with output).
Average Cost and Marginal Cost: Average cost shows per unit cost; marginal cost indicates the cost of producing one additional unit.