Tests on lectures prob sets Not necessarily all textbook Aggregate Take distinct things and consider them as a whole 9 4 12 Tuesday September 04 2012 10 59 AM A What is economics not a Compared to business courses i ii Profits Creating firms Compared to finance b c Freakonomics i How to make money in stock trading bond markets i ii Economics B Statistical techniques to non economic situations Very special cases of economics a Social science i Explain society 1 Definition b Understand how the economy works i Study of choice under conditions of scarcity Viewed from two perspectives 1 C Individual D a Society a Time and money Scarcity of resources i ii iii iv Labor Land Including natural resources Capital 1 2 Long lasting physical tool that labor uses Physical a Human a Entrepreneurship Building computer 3 Knowledge skills and the training of the labor force 1 Entity that brings other resources together b What are the choices elements consequences E Types of studies of economics Micro economics a i Looks at the individual pieces of society Households individual firms Markets for medical care a specific category 1 2 Macro economics b i ii Big picture Economy as a whole Study of the behavior and interaction of economic aggregates Ex GDP employment price level inflation rate interest rate 1 Types of analysis F a Positive economics i ii iii iv Studying how the world works Not try to give advice just observing and answering how it works Descriptive in nature If A then B 1 If government spends A then deficit will rise by B b Normative economics Prescriptive Makes a value judgment we should do A i ii iii 1 2 The best way to reduce the deficit is to cut government spending The only way iv Most disagreements are around normative economics Lecture Notes Page 1 CH 1 Wednesday September 05 2012 11 15 PM 1 Scarcity and Individual choice a b Scarcity leads to different choices to use resources Cost i Opportunity cost 1 What must be forgone when making a choice 2 Scarcity and social choice 3 The four resources a Scarcity in social context is of resources things used to make goods and services a b c Time humans spend producing goods and services All goods and services come from the four resources Labor i Capital i ii Any produced long lasting tool that is used to create goods and services Physical capital 1 Consists of machinery iii Human capital 1 Skills and knowledge possessed by workers d Land i ii e Entrepreneurship Physical space on which production takes place Includes natural resources i Ability to combine other resources into productive enterprise Lecture Notes Page 2 9 6 12 Ch 3 Thursday September 06 2012 10 59 AM A Models a b Abstract representation of reality Assumptions in a model i Simplifying assumption Supply and Demand 1 2 Keeps model simple does not affect the conclusion ex no trees on road map all consumer goods lumped into one category ii Critical assumption 1 2 Functions i ii 1 2 3 Variables in models Endogenous i c d Assumption built into model that is critical for conclusion Ex all roads are open on a map Triple equal sign means defined as Example v f c x F unction of variables Plus sign over the variable if it correlates slope minus sign over variable if it correlates neg slope Variable inside the model What we re trying to explain V in example above ii Exogenous A given not necessarily inside function Determined outside the model C and x in the example above 1 2 3 1 2 3 e Ceteris paribus i Supply and Demand All else the same B a b A model designed to answer how are prices of goods determined in an economy Demand i Q d trip quantity demanded trip of oranges buyers in NYC would like to buy each month Hypothetical would like to buy from realistic restraints a Example 1 2 Q d D Poranges Income wealth Psubstitute Pcomplement expectations tastes Wealth net worth Income salary ii Law of demand 1 2 When price goes down demand goes up Price goes up demand goes down c Demand Curve i ii iii When price of good changes we move along demand curve When any other variable other than price causes demand to change then demand curve shifts C Supply a b Q s defined as quantity supplied of oranges suppliers would like to sell in NYC each month Q s S Poranges Pinputs Palternate of firms tech expectations Quantity supplied and price c d Supply curve i i D Equilibrium Hold all other variables constant Same effects by variables as for demand a b Situation that doesn t change unless one or more exogenous variables change Difference between Q supplied and demanded excess supply i The short side of the market rules 1 Whichever is less Q supplied or demanded sellers or buyers c Price equilibrium is found where supply and demand curve intersect E Comparative Statics Lecture Notes Page 3 E Comparative Statics Natural experiment done to a model Delta exog delta endog Should lead to a shift in either demand or supply curve Change in income shift in demand curve Advancement in Tech shift in supply curve d Can denote with P Q up arrow a b c i Examples i ii Lecture Notes Page 4 Unemployment GDP Price Index 9 11 12 Tuesday September 11 2012 10 57 AM Supply and Demand cont Stable Equilibrium A a b One where forces in the model push you back towards it Difference from Equilibrium Equilibrium says only if you get there you ll stay there Whereas Stable Equilibrium will be forced there c For Supply and Demand It is stable equilibrium Natural forces push price and supply to the equilibrium price Unemployment A How to Define the Unemployed a b People who are willing and able to work but not working Every country has different way United States Types of Unemployment i B a i ii iii Frictional Unemployment Very short term Unemployment that exists as people are looking for a job that they will get Example 1 2 New entry level Person who is quitting and moving to a different job iv Is not a social problem 1 2 Can be a good thing Implies that people are spending time to find a good job employee b Seasonal Unemployment Due to seasonal factor Short term Is predictable Not a social problem A problem for statisticians 1 Use Seasonal Adjustment 1 Employees are compensated higher to offset the non working months i ii i ii i ii iii iv v a b Remove the anticipated seasonal unemployment find the difference after adjustment for each month All gov reports include seasonal adjustments c Structural Unemployment i ii Long term Has something to do with structure of the economy 1 A mismatch of jobs available and the people who want jobs a