INTRO TO MACROECONOMICShttp://psyentificnonsense.files.wordpress.com/2013/04/gwartney-macroeconomics-private-and-public-choice-13th-ed.pdf8/29/2013Economics - How humans make choices. The study of how humans make choices. Things con-strain us.-We all have needs - but what about desires?-Limited needs, unlimited desires - we are trying to meet these needs with limited resourcesScarcity-A free good is something so abundant in nature that if the price were 0, we still wouldn’t run outi.e - sunlight, salt water, dirty air.-A scarce good is just about everything else. It is not so abundant in nature that if the price were 0, you still couldn’t get as much as you want.-How do we allocate who gets what in a market economy(U.S)? Putting a price on something, first come first serve, rationing.-Time can be a scarce resource - Chick-fil-a example - you have retired people and college stu-dents. You won’t see doctors or lawyers lining up.-Allocating with bias is inefficient.-Price is un-bias - price does not care about who is buying so bias is eliminated. However, if you have a product someone needs and they can’t afford it. -Priorities influence decisions - most people can afford a ferrari if they make tremendous sacri-fices.4 major resources-A resource is any good used to produce another good.1.Land(natural resources) - anything contained within the land2.Labor - mental/physical labor3.Capital(Physical and financial) - a bulldozer or a sewing machine4.Entrepreneurship - anyone who brings together the other three forms of resourcesLand - L - return is rentLabor - N - return is wagesCapital - K - return is interestEntrepreneurship - profit - pi symbolCommunism - From each according to his ability, to each according to his needPositive vs. Normative EconomicsPositive/Objective statement - doesn’t have to be true, just testableNormative/subjective statement - someone’s judgment/opinion. *The word ‘should’ can really trip you up. Suppose this - If I exercise/eat less I ‘should’ lose weight - this is still positive because it’s testable.-$23,050 - poverty line - it’s normative because its an arbitrary judgment9/3/2013The Economic Way of Thinking(Principles of Economic Thinking)1. There is always a tradeoff - we call that our opportunity cost - there is always a cost - seatbelts - cost: 50 billion a year/saves 400 lives. - statistical murder. 2. Individuals choose purposefully, therefore economically(Trying to get the most for least) -An example would be - suppose you’re getting taken out for a steak, lobster, or pasta vegetarian dinner - If three things cost the same, which one would you choose ? the one you like best. Thereis a method to the way we do things. There is a logical manner in the way we make choices. -Utility - how much enjoyment you get out of something. The benefit, the satisfaction. The high-est utility - is the most satisfaction. How do we measure utility? - This weekend you ran into someone at an ice cream place. One scoop scenario. Whoever outbid on the ice cream had the highest utility. Whatever he paid is thatutility. This is actually not a good measure of utility. The idea you can measure utility based on dollars is not ideal. The drawback is that not everyone values money the same. -If you have three things that give the same utility, you would choose the one that cost the least. -A transactions cost is anything beyond the price that you have to pay to get that thing - a text-book costs 89 dollars way across campus but 90 dollars at the store right in front of you. You will probably just choose the store right in front of you.3.Incentives matter - Does FSU want you parking in handicapped spaces..how do you know ? -People respond to incentives in a predictable wayUtility - Amanda(the potty training video) got a lot of benefit from M&Ms. She was MAXIMIZ-ING her utility by controlling her behavior. -During collective decision making, government tries to create the right incentive to get us to do what they want. Sometimes the government says I’m going to tax homes with windows. So the incentive is one thing but the result is very different. -When have government programs had one intended consequence but the actual(unintended) consequences were very different? -Legislating morality - the government created a law against drinking alcohol. There intentions were to clean up America. The unintended consequences were gangs, bootlegging, and all this crime. 4.Economic thinking is marginal thinking. People make decisions at the margin. -Marginal just means additional benefit. The way you think marginally is - this is what i’m goingto do, what would an additional choice entail. “last month I had to choose between food and my prescription drugs” 5.Information is a costly good - As such we know that we probably don’t get fully informed on every decision we’re going to make. Economist assume since information is expensive you are going to be let’s say an uniformed voter. You’re on your way to class and you go into a store to buy a pencil. You didn’t research which pencil is best. So you don’t always have a well informeddecision. Buying a car would be a different story. We have people voting who are less than per-fectly informed. -Rational ignorance - you remain rationally ignorant as long as you’ve done a benefit analysis and figure out the cost of knowing my representatives name is bigger than the benefit of knowingthat name. The idea that we remain ignorant about something when the cost of knowing doesn’t outweigh the benefit. 6.Remember the secondary effects - Houses being taxed with windows. Their intention was to get revenue from taxing homes but everyone built houses without windows and the backfire was now people aren’t getting enough vitamins from the sun to avoid being taxed.Pitfalls in economic thinking-Ceteris paribus - means all else equal1.Violating the ceteris paribus condition - don’t forget you can only change one thing at a time, hold things constant. If you exercise more, you shouldn’t necessarily eat more. You should hold eating constant. 2.Good intentions do not guarantee good outcomes - seatbelt laws. Causing more people to drive on highways instead of flying on airplanes causing more highway accidents. -The tragedy of the commons - When things are owned commonly instead of privately they can be abused or overused like fishing in the sea. 3.Association is not causation - every time it rains i see folks
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