Econ 1 Week 1 Class Notes PDF

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Week 1 Lecture 1 Monday October 6 Econ 1 Intro  Use Firefox for Mindtap website Lecture—Ten Principles of Economics  How Economists think o Microeconomics o How principles guide understanding and make decisions using the econ tools/principles (guiding force behind decision)  Trade-offs in economics o How people interact o For individualinteractionseconomy as a whole on a global scale  What is Economics all About o Limited nature to resources—scarcity of resources  How allocate of resources (who gets what) o How resources given out  Idea 1—Incentives Matter o People act a certain way based on a reward o Claim—rational people respond to incentives  Rational—people respond to stimuli  Ex. People buy stocks when go down and sell when go up  Respond in predictable ways (when rational people)  Self interest in important  Pursuing self interest promotes society o Examples  People buy more hyrids when gas goes up, and gas price goes down  Cigarette taxes increase, teen smoking falls  Ralph Nader’s Book (1960)—Unsafe at Any Speed  Seatbelts—advocate for seatbelt. Driver mentality does down. But people start driving faster so more accidents. Unintended consequences that pedestrian fatality increases.  Intentions don’t always transform well—full picture  Idea 2—Markets are Usually a Good Way to Organize Economic Activity o Markets are a way to organize economic activity  Market—group of buyers and sellers  Organize—determine goods produced, how to produce, quantity, and who gets goods  Goods are resources  All the organized activity that comes together to get one product o Ex. All the steps for a cup of coffee o Ex. Making of a pencil  If pursuing self interest, promote society wellbeing

Week 1 Lecture 1 Monday October 6

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o Market Economy—allocate resources that decentralized decisions making process  There is no one entity in charge  Produces and consumers are the drivers (take over course of market action)  Consumer sends signal to market (what want and don’t want) o Ex. Pager’s market has died  Producers respond to signals  “Invisible hand”—market organizes and works itself  Adam Smith The Wealth of Nations  If interrupt invisible hand, you get loses to market o Ex. Government intervention can be good/bad o Gains need to outweigh loses o What can go wrong if government steps back  Unequal distribution of goods. From producer prospective, can raise prices and create disparity of which consumers can afford certain goods  Crime—need gov. protection for goods  Gov. need to support economic activity o Invisible hand works through the price system  What value do you place on certain goods  Ex. Concert—how much will you pay over market value  Different consumers place diff values on things  Ex. Camping out in front of Apple store for iPhone 6. Tradeoff is your valuable time  Consumer and producer surplus o Tradeoffs  Depending on decisions, you need to rule some possibilities out (what are you trading off)  How make that choice? o Ex. What you eat—health conscious, price, convenience, maximum benefits o Ex. Clothing—comfort, fashion, weather, price, quality Idea 3—People Face Tradeoffs o Society faces tradeoff between efficiency and equality  Efficiency—society gets the most from scarce resources  Doesn’t care about moral code  Ex. If a worker does the job of 3 for the price of 1, then you hire the worker  Equality—limited number of jobs to allocate  Ex. If a worker does the job of 3 for the price of 1, then you hire the 3 workers because there is a scarcity of jobs

Week 1 Lecture 1 Monday October 6

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 If all equality, then the incentives go down  How does gov. come in to try to balance the 2 o Making decisions requires comparing the costs and benefits of alternative choices  Opportunity cost—what must be given up to obtain something  Ex. Lecture vs. Sleep  Ex. Going to movies—Enjoyment vs. studying and time giving up  Ex. College—tuition and books vs. foregone wages o Give up working full time, travel, family time o Lodging and food—are you really giving it up  Living at home, living in the area Idea 4—Rational People Think at the Margin o Rational people—make decisions by costs and benefits of marginal changes  Ex. Should I take an extra class  Ex. Hiring an extra worker—law of diminishing returns, marginal productivity, what do you get out of it, opportunity cost (more wages—does cost outweigh benefit—increase in production from that one worker) o Ex. Near-zero marginal cost of airline taking on extra passenger when flight isn’t full  Do you lower the price to fill the last seats  Costs associated with extra passenger—food, fuel for extra person, flight attendant service. Signal to other passengers that it is possible to get a cheaper ticket through stand-by  Marginal cost is small compared to benefit  BUT—signal sent to passenger  Tradeoff—what if it doesn’t work. Miss your flight o Ex. Hotel Rooms lowering prices deals  Costs vs benefits Idea 5—The Power of Trade o You can be self-sufficient in every way (take up so much work so no time for anything else) OR trade and barter  Pursuing self interest promotes well-being of society o Imagine if country stopped trade—rise in prices, shortages bcz cutting supply, quality affected, less variety of goods  Ex. Coffee beans...