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TECON101 Week 2 Notes

by: Kelsey Rowley

TECON101 Week 2 Notes TECON 101

Kelsey Rowley
University of Washington Tacoma
GPA 3.64

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About this Document

These notes cover what we discussed week two of the quarter. Includes topics such as "The 10 Principles of Economics," "Economic Methods," "Circular Flow Model," and "Supply and Demand."
Class Notes
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This 5 page Class Notes was uploaded by Kelsey Rowley on Friday October 7, 2016. The Class Notes belongs to TECON 101 at University of Washington Tacoma taught by in Fall 2016. Since its upload, it has received 6 views. For similar materials see ECONOMICS (I&S,QSR) in Economics at University of Washington Tacoma.

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Date Created: 10/07/16
WEEK 2 NOTES Monday 10/3 Overview  Review of last class (intrinsic/extrinsic motivation)  Continue Lecture One To-Do  Read Chapter 4 sometime this week (according to syllabus) Lecture 1 Continued… 10 Principles of Economics continued… 1 Markets are good way to organize economic activities a Fundamental Economic Questions i What, how much, and who produce goods b Governments don't know what people want or who's good at doing what i Ex. Prof does maintenance, neighbor makes coffee, Prof would be bad at making coffee and vis versa b Market Economy - allocate resources through many decisions of households and firms i Works through prices 1 Helps sellers determine how much to supply, helps buyers determine how much to consume, = economic harmony ii Adam Smith (Father of Modern Economics) - "Invisible hand" directs markets 1 Karl Marx and Engles are the opposite of Adam Smith a Government directed, resources allocated evenly, Communism 2 Welfare Policy to help Marx's concerns about the drawbacks of market economy, small governmental interference (taxes, etc.) 2 Governments can sometimes improve market outcomes a Welfare policies - market fails in achieving equity b Laws to protect workers - market fails in achieving ethics (Ex. Child labor, safety) c Laws to protect consumers/ information asymmetry (Ex. Ensure quality, low prices, against market power) i Market Power 1 Power goes down as firms go up 2 Monopoly: one firm controls everything, price-gouging, public suffers b Enforce property rights (Ex. Policemen, intellectual right (patents, secrets)) c Laws to protect environment (Ex. Pollution) d Externalities - market doesn't account for these, need government intervention (Ex. Smoking affects person next to you) i Negative (Ex. Smoking) ii Positive (Ex. Internet) 2 A country's standard of living depends on its ability to produce goods and services (measured in GDP: Gross Domestic Product) ¿of goods∨services produced a Productivity = unitof labor i Depends on physical and human capital (equipment, skills, and technology) 2 Prices go up when government prints too much money (Inflation) 3 Society faces a short-run trade-off between inflation and unemployment Wednesday 10/5 Overview  Pre-Lecture Tangent (Invisible hand, trade-off between efficiency and equality)  Finish Lecture 1  Exercise on MobLab  Start Lecture 2 - Economic Methods To-Do  Read Chapter 4 sometime this week (according to syllabus)  Homework 1 in Canvas (due Tuesday 10/11 - 11:59pm) Pre-Lecture Tangent Economists make mechanisms too  "Invisible Hand" - Free market mechanism Trade-off between efficiency and equality  Income tax (rich pay more - more equality but less efficiency) o Should we impose income tax? Democrat (yes) vs Republican (no)  Economic pie o Equality means equal parts of pie o Efficiency means pie gets bigger 10 Principles of Economics continued… 1 Prices go up when government prints too much money (Inflation) a Inflation does not affect purchasing power b Hyper-inflation is bad (really high like +500%) i Cost of running to bank (very high) 1 Go to black market to change to US dollars (Bali - 1000% inflation) ii Menu cost b Mild inflation is good i Government uses it to rescue bad economy (see principle #10) 2 Society faces a short-run trade-off between inflation and unemployment a Sticky-wage theory - Only in short run i Wage contracts do not adjust for inflation 1 Employer has lower cost for labor, more income for goods, therefore hire more people, those new people now have money and buy more things 2 Employment , consumption , GDP  b In the long run, inflation does not affect economy i Productivity = long run economic growth MobLab Exercise Economic Methods 1 Observation  Ask a question a Why make a firm? - Ronald Coars i Reduce transaction cost ii Firm organization: hierarchy - Henry Ford 2 Make a theory (math can help) 3 Test a theory Friday 10/7 Overview  Other Economics Resources  Continue Economic Methods  Circular Flow Diagram  Demand and Supply To-Do  Read Chapter 4 sometime this week (according to syllabus)  Homework 1 in Canvas (due Tuesday 10/11 - 11:59pm) Other Economics Resources  Freakonomics podcast  Econtalk podcast  Dan Ariley's podcast Economic Methods continued… Economic Method 1 Step One a Observations i Ex. Newton had apple fall on his head b Ask questions i "Why did that apple fall?" 2 Step Two a Make a theory i Ex. Gravity theory a Make a model - Simple abstraction from the complex world i Math helps ii Examples 1 Ex. "Super cow is non-existent" a ???... Point: we do not need a complex model, simple models can explain the same thing 2 Flat map a Good model for showing where countries are in relationship to each other b Bad model for navigation a Get theoretical results 2 Step Three a Collect data - test it i First-hand data (more trustworthy) 1 Survey data 2 Experiments ii Second-hand data (less trustworthy) 1 Existing data Two kinds of economic scientists  Economic theorists (come up with theories)  Empirical economics (test out data) o More empirical economists now o Where $ is at o Need statistical background Empirical Economics - Econometrics class  Fallacies in Empirical Research 1. Arguments by anecdotes  Ex. Dropouts (like Mark Z and Bill Gates)  Billion dollar income in future  Only used two observations  Need a large sample size! 2. Correlation does not imply Causation  Ex. Global warming  Smaller women's underwear  The are correlated, but not caused by each other 3. Reverse causality  Your analysis/conclusion could be wrong if there is a reverse causality  Ex. People who jog tend to be more healthy Jogging is good for health OR Healthy people jog more Circular Flow Model *Note: I feel like the "Imports" arrow should be coming from the firms, not households. I will ask on Monday* Chapter 4 - Supply and Demand Opening Question: Value does not equal price  Ex. Water and diamonds o Water is cheaper than diamonds o Water is more abundant than diamonds (more supply)  Value affects demand o Price is due to value and supply Competitive Market (Supply and demand only affect competitive markets) 1 The goods are identical 2 Many buyers and sellers with limited control over price 3 Ex. Beer market, coffee market, agricultural market, etc. Supply and Demand  Quantity Demanded: Amount of goods that a buyer is willing and able to buy over a particular time period  Demand Schedule: How much of a good or service consumers will buy at different price o Ex. When price of pizza goes up, your demand for pizza goes down


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