Welcome to PMBA0608: Economics/Statistics Foundation

1. Welcome toPMBA0608: Economics/Statistics Foundation Fall 2006 Sessions 1 August 25

2. Session 1: August 25Introduction • A little about me • A little about you • Family • Job • Undergrad degree • Etc.

3. Personal Index Cards • Name • Address • Email • Employment Information • What do you do? • Undergrad degree • Major • Year • Phone numbers (please list at least 2) • A screen name for your grade

4. You have received the course contract as an email attachment • Did you read it? • Any questions? • My website: http://www.marietta.edu/~khorassj/ • My email: khorassj@marietta.edu

5. My teaching philosophy • Assumptions • Students can read and understand a lot on their own. • Different students have different learning styles. • Sitting through 3 hours of lecture is boring and ineffective for most students. • Are these assumptions right?

6. My teaching philosophy 2. My job • Is not to transmit knowledge to you. • Is to design the map that leads you toward constructing your own knowledge. • Is to help you figure out how to ask the right questions when you feel lost. • Is to ask you questions in an attempt to find out if you are on the right track. • Is to give clear and meaningful answers to your questions. • Is this job description acceptable to you?

7. My teaching Philosophy 3. Your job • Is not to absorb the transmitted knowledge like sponges. • Is to study the map. • Is to follow the map. • Is to ask questions when you feel lost. • Is to respond to my questions. • Is to be prepared to be wrong sometimes. (Being wrong is okay as making mistakes is an inevitable part of learning.) • Is this job description acceptable to you?

8. My teaching Philosophy 4. Our Job • Is to create an effective and comfortable learning environment, where everybody feels free to express his/her thoughts and ideas.

9. My opinion • Are there stupid questions? • Sure, they are. • But if you don’t ask, you will remain stupid.

10. Do I like nonsense? Yes; “I like nonsense; it wakes up your brain cells (Dr. Seuss)”

11. Here is a nonsense question:“Why is there economics?” • Resources are limited (scarce) . • Wants are unlimited. • Can’t have everything • Need to choose. • Economics is the study of how these choices are made.

12. Ten principles of economics (Mankiw, Chapter 1) • Is your job secure? • What if your job was 100% secure? • What would that do to your productivity? • All else being constant, there is a trade off between job security and workers’ productivity.

13. Ten principles of economics • What was the next best thing you could do with your time instead of attending this class? 2. There is always a costassociated with an activity. • Opportunity cost = value of the next best alternative not chosen.

14. Ten principles of economics • Have you ever bought a concert or airplane ticket and later decided not to use it? • Is it irrational to not go to the concert?

15. Ten principles of economics 3. No, rational people think at the margin. • The $60 you paid for the ticket is gone any way (sunk cost). So it is irrelevant. • Since the day you purchased the ticket, you have found a job that pays $100 an hour. • Marginal cost of going to concert> marginal benefit  don’t go.

16. Ten principles of economics • Since Giant Eagle (a supermarkets in Marietta) started giving points toward purchasing gasoline, my husband never shops anywhere else. 4. People respond to incentives.

17. Ten principles of economics • Will you buy something if it doesn’t make you better off? • Will you sell something if it doesn’t make you better off? 5. Trade makes everybody better off. • This includes international trade • Trade is not a zero sum game.

18. Ten principles of economics • Suppose you have a piece of land and want to sell it. • Will you sell it to a farmer or a builder? • All else being equal, most people will sell it to the person who offers them a higher price. • Why would the builder offer you a higher price?

19. Ten principles of economics • Because he expects to be able to sell the houses at a high price. • Because there is a shortage of new houses in the area. • Why isn’t the farmer offering you a higher prices? • Because there is no shortage of agricultural products in the area.

20. Ten principles of economics • So, is it good that the land was sold to the builder instead of the farmer? • Yes? • That is market economy at work. 6. Markets are usually a good way to organize economic activity.

21. Ten principles of economics • Suppose a nearby shoe factory pollutes the air. • Who does effectively pay a price for this pollution? • The stock holders who don’t live in the area? • The customers who also don’t live in the area? • The people who live near the factory?

22. Ten principles of economics • Who should pay a price for this pollution? • People who benefit from shoe production • The factory (supplier of shoes) or the customers (demanders of shoes). • This an example of marker failure. 7. Government can sometimes improve market outcome.

23. Ten principles of economics • Why do the citizen’s of some nations have a higher living standards than others? • In part, because they can produce more goods and services per hour than others (more productive) 8. All else being constant, there is a direct relationship between productivity and living standard.

24. Ten principles of economics • Too much of anything lowers its value. • http://www.overstock.com • Too much money lowers its value 9. Too many dollar bills printed by government value of each dollar drops each dollar can buy fewer goods and services or, dollar price of goods and services rises inflation

25. Ten principles of economics • Suppose the prices of good or service that your employers supplies drop sharply. (deflation) • What would that do to profits? • What if the businesses are not profitable anymore? • Shut down Layoffs higher unemployment rate 10. In the short run, there is a trade off between inflation and unemployment.