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What is Economics?

What is Economics?. “Essentially, economics is the study of people . How people work within a system to get what they need.”. “dolla, dolla bill y’all, cash rules everything around me”. Relevant Reading – Chapter 1 in the text book. Thinking Like An Economist.

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What is Economics?

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  1. What is Economics? “Essentially, economics is the study of people. How people work within a system to get what they need.” “dolla, dolla bill y’all, cash rules everything around me” Relevant Reading – Chapter 1 in the text book.

  2. Thinking Like An Economist • Economists are like scientists • They study the natural world, make assumptions, devise theories, collect data and analyze the data. However, economists differ from other scientists in the data they collect. Economists are not able to experiment, because they are dealing with human beings, not lab rats! Economists must collect data as it occurs naturally in the system. (Historical Data)

  3. Three Guiding Economic Principles • 1. People Face Tradeoffs. “Nothing is FREE” • 2. The cost of something is what you give up to get it. (Opportunity Cost) • Opportunity Cost can be in terms of $ or something else. • For example, there might be many costs related to studying medicine…. • Tuition etc. $250,000 (Opportunity Cost) • What else do you give up? or… Not being able to study law or something else.(Opportunity cost)

  4. Kobe Bryant skipped college and went straight into the NBA, even though he had good grades and strong entrance exam scores. What was his “opportunity cost” of attending university ? The cost of not going to the NBA ?? (4 years X $2 million) = $8 million ?? What was his opportunity cost of entering the NBA ? The cost of not going to college. What would a 4 year degree be worth to him? Fun? P.E. degree? law degree? Guiding Principle #3 People respond to incentives Rewards, Punishments, etc.

  5. Think of 5 things that you have that poor people do not • Why do YOU get those things? • What makes you so special? • Is that really fair that you should have those things? • Why can’t we make a society in which all the people get access to those things? • This is known as SCARCITY • We have unlimited wants but limited resources • This is the root of economics…it is essentially the study of scarcity

  6. Scarcity dictates that we must answer the three basic questions of allocation: • What? What goods and services will be produced with society's resources? • How? How will society's resources be used to produce the goods and services? • For whom? Who receives the goods and services produced with society's resources? Who gets to decide these things? • The Government or the People?

  7. So, really, what are economies and societies trying to accomplish? Social Goals of Economics • Freedom-the ability of people to decide for themselves • Efficiency-how well scarce resources are used • Growth-increasing production over time • Security-reducing risks and protecting people from those risks • Equity-what is “fair” for all people • Stability – maintaining stable prices and full employment FEGSES

  8. Create a Public Policy • Get together in a group of 3 and consider one of these public policy issues. • What is your decision? • What tradeoffs did you have to consider? • Make sure you consider the social goals of economics (FEGSES) • What social goal of economics did you focus on most when making your policy decision?

  9. Now, consider your plans…which of the goals did you focus on? • freedom, • efficiency, • growth, • security, • equity, • stability • Why did you choose to focus on those? • You faced a tradeoff…and that is what economics is about…studying tradeoffs due to scarcity

  10. So, now you get scarcity and tradeoffs and economic goals…so…how do countries and economies try to handle these questions? • There are 3 basic ways of answering the questions of what, how much, and for whom? • Command Economy • Market Economy • Mixed Economy

  11. Which system you use depends on which goals (FEGSES) are most important to you. • Command Economy- “10 Boris’ in a room” deciding who gets what. • Most Important FEGSES Goals? • Security – Protecting people from risk. • Equity – Controlling what is fair for all people. • Stability – Maintaining stable prices and full employment.

  12. Market EconomyAllows all individuals to do what is best for them. No central planning. Most Important FEGSES Goals?: 1. Freedom-the ability of people to decide for themselves 2. Efficiency-how well scarce resources are used In a market economy the scarce resources go to the people who can make the best use of them. How? Because those people can pay the most for them.

  13. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own self-interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages."  Adam Smith

  14. “Man’s highest moral purpose is the achievement of his own happiness.” Ayn Rand

  15. Mixed Economy:Market Economy with some government influence Mixed Economic Systems attempt to achieve… Freedom and Efficiency (Market Economy) AND Security, Equity and Stability (Command Economy)

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