ECON 221 Lecture 1 Outline of Current Lecture I. What is economicsA. The study of decision makingB. Microeconomics is the study of the tiny parts that make up the economyII. OptimizationIII. EquilibriumIV. EmpiricismCurrent LectureWhat is economics?Economics - the study of decision-making. Micro - Bits that make up the economy- That includes all consumers, the government as a whole, politicians individually, a local coffee shop owner… etc. Optimization and equilibrium = how economists think about the world in theory. - Optimization- choosing the best thing for you.o All economic models are based on the assumption that people (or governments or businesses etc.) optimize. - Examples:o What is the “best” amount of education to receive?o What is the “best” number of chairs to produce if you run a chair factory?- Equilibrium- when no one wants the change their decision given what other people are doing.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Sometimes equilibrium is not always the best choice.- Once in equilibrium, we stay in equilibrium (unless something in the world changes.)o Ex. Prisoner’s Dilemma. Empiricism = testing how the world works - Optimization and Equilibrium are concepts describing how economists think about the world in theory. - Economists tests whether theories hold up by using actual data from the world… an “empirical approach”Example: Charitable giving- Donations to educationo If people give to education because they are worried about making sure it continues… they can give LESS when a lottery is introduced. Implication: government spending has limited impact, just replaces donations.o If people give to education because it makes them feel good… people give regardless of what the government does. Implication: government spending increases money available to education. - Resulto Using data on donations received by universities, schools, and other education-related organizations…o Donations to education fall by about 10% when a lottery is introduced.- This tells uso People are motivated both by “feeling good” and wanting to make sure there is enough money for education.o Impact of government spending is somewhat (but not totally dampened) by declining
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