Econ 162 WK 1 Introduction to Econ 01 30 2013 Eco News Jan 30 2013 FOMC federal open market committee o Meet 8x year o Fix economic issues o 2 day meetings o press release on state of economy BEA o GDP released o For 4 quarters of the year o After the quarter ends we get the report o GDP decrease in the 4th quarter Inventory is falling o As a result of decrease deficit GDP o We had increase in first 3 but decrese in the 4th o 09 2 quarters down o 09 2nd 2 qurters went up investor will look into eco news make estimates and decided whether to invest or not 1 Choose an item that you had for breakfast then make a list of the people these people allow us to learn because we dnt have to be worried about Class Day 2 who brought it to you Bagel i Farmers ii Manufacturer dough iii Manufacturer 2 iv Distributer vii prsn who takes order viii makes the bagel v trucks vi stores ix cashier x you being self sufficient do I buy coffee o Scarcity What is economics 2 Economics is the study of choices that arise from scarcity Scarcity doesn t allow us to be infinitely satiated There isn t enough of everything Choices are made from scarcity Opportunity Cost The benefit foregone for not choosing the next best alternative o Kid at a store w a dollar 1 Lolipop or 2 Bubble gum Economic goods sacrifice required Scarce Price 0 Free Goods Not really a part of economics because it s the study of and these are abundant scarcity Abundant Price 0 Oxygen o No limit o No restriction o 3 Economics is the study how individuals or organizations allocate scare resources among alternative uses to satisfy unlimited human Summary wants o Day 3 2 1 13 News created a lot of jobs unemployment down for January FOMC agency in Fed Reserve What to do with money raise intrest raise H Sandy affected 4th quarter gas consumption increased 4 GDP why it fell decrease in spending keep interest low by buying long term bonds 0 until 2015 keep it low influence future as long as credit is above 6 or inflation is above 2 7 people get to vote January unemployment payroll employment rises o survey home and business asking whos working needs work o people will start looking for jobs o they have jobs but unemployment increases Class Economics the study of how individuals and organization allocate scarce resources among alternative uses to statisfy unlimited wants Advertising makes us think we need something new and better to satisfy a basic need Advertising increases wants 5 Cellphone Economic resources Land whole environment used for production Its return is rent o Global Footprint measuring tool Labor human effort time Its return is wage Capital physical means of production What we use to our work Its return is interest Entrepreneurship risk its return is profit Production function Input resource output goods services Macro vs Micro Micro is individual decision making ex households firms markets Macro aggregate economic variables GDP unemployment inflation interest rates money supply international exchange rate balance of payments positive analysis what is o descriptive o facts testable o objective o causative o if X then Y normative analysis o what ought to be o prescriptive o subjective o opinions 6 CH 1 Intro 01 30 2013 Economics is study of choices that arise from scarcity 7 Study the principles and rules for improving choice making Limited resources that need to satisfy unlimited human wants Scarcity the fact that we have limited resources Economics is a social science it is involved with the study of human behavior interactions and relationships Economics helps us to measure and analyze the costs and benefits of different actions That s helping us to improve decisions We have 1 million things we want do we only have limited time to do it therefore we need to choose which things are wisest to allocate time towards We have to make economic choices There are two types of goods Economic Goods scarce and therefore have a positive price They required a sacrifice in order to obtain them free goods they re are abundant and therefore have a zero price Because there s no choice to be made economics doesn t really include them 8 Land physical topography or all resources from the earth used for production The effects of everything being lumped together is that the environmental consequences are ignored Global Footprint measures the consequences of economic activity on Land It includes the cost of extraction use and disposal in our use of land 9 Week 2 2 4 13 Jacob Zwickler Economic methodology how do we study the world We build models Complex reality assumption simple model Assumption simplify the world Macro assumes more details Simple is better 1 overriding assumptions a rational self interest i economic decisions make the decision maker better off 2 More is better 3 Ceteris Paribus all other things are constant Recognize a problem make assumption develop model make a prediction about world test model 2 8 13 PPC a model that shows maximum combos of producible goods with a given amount of resources and technology 10 Example 2 PPC of economy as a whole Opportunity cost of 1 ton of butter Concave function make caves PPC of guns and butter 24 20 16 12 8 4 0 s n U G 1 butter 1 gun 2 butter 3 guns 3 butter 4 guns 4 butter 5 guns 5 butter 7 guns changes in PPC resources o immigration labor resources technological improvements 11 0 1 2 3 4 5 6 Butter law of increasing cost if you increase the amount of 1 good produced the opportunity cost also increases Due to the specialization of resources both only butter 25 20 15 10 5 0 25 20 15 10 5 0 s n U G s n U G PPC of guns and butter PPC PPC 0 1 2 3 4 5 6 7 8 9 Butter PPC of guns and butter PPC PPC 0 1 2 3 4 5 6 7 8 9 Butter 12 Week 3 Application of PPC 01 30 2013 Eco Growth Capital resources devoted to future production Consumption resources for current enjoyment Country a is saving and eco will grow Country b is spending more and wont grow as well US Eco growth dependent Capital formation o Purchase of Capital is an investment Investing depends on saving o Summary Eco growth is dependent on savings Law of increasing cost is due to Principle of Comparative advantage Specialization makes production more efficient Each party in a trade should specialize in that good in which they are relatively more efficient Lower Op cost Corollary mutual gains arise from specialization and trade o Absolute advantage Lower resource cost than another Less cost time to make something o Comparative advantage 13 Lower