Introduction to Economics
Introduction to Economics ECON 101
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This 22 page Class Notes was uploaded by Ferne Miller on Sunday October 25, 2015. The Class Notes belongs to ECON 101 at University of North Carolina - Chapel Hill taught by Tat Sekhposyan in Fall. Since its upload, it has received 85 views. For similar materials see /class/228689/econ-101-university-of-north-carolina-chapel-hill in Economcs at University of North Carolina - Chapel Hill.
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Date Created: 10/25/15
Introduction to Economics Lecture 1 Tatevik Sekh posya n UNCiChapel Hill May 15 2007 Economics The word economy comes from a Greek word for one who manages a household In general economics is the study of how society manages its scares resources I May 15 2007 2 22 Why Study Economics Figure3 GDP Per Capita Five Regions 18000 15000 E12000 a 9000 6000 3000 0 E g 5 g mu vapulapmn WWW I UK USA anada AustraHa New Zea and 354 H apan 124 In France Germany Netherlands Smndinaw a 184 IV Rest of Western Europe latin Amenta 985 Eastern Europe Soviet Union V Asia except Japan Africa 3590 Tatevik Sekhposvan UNCChapel Hill Introduction t9 Ecgngm39 May 2on7 The World by Income Low 755 or less Lower middle 357564995 This map presents economies classified according to World Bank estimates of 1999 GNP per capita upper middle 3529964265 Not shown on the map because of space constraints are French Polynesia high income High 9 266 or more American Samoa upper middle income Fiji Kiribati Samoa and Tonga lower middle income 39 and Tuvalu no data No data D iERD 30988 JULV 2000 Russian Federation immism Munguh i ib i isimm in 5 1 minimum I fvtuuri39 uni39ui Mursi niiqrd Feaemiea we m P ulMi39cmrESi Tog luriu Guinea Eqm 560 im w Princi39m Nauru Soiormn 1 mm simian mi r Dominica 05 Si Vimemurd me Grenadi39res Introdu tlon to Economics Lec Ta VIkS hposyan 3 Bhutan Tmmmmam Q W WJ W13 May 15 2007 5 22 c Mali d USA T km rmm Q wlww MD 7 7 May 15 2007 6 22 2539 20 Per cent I UI I O I I I I I I I I I I 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year Source Mankiw 19973 Figure I Unemployment in the US economy 1900 1995 Tatevik Sekhposyan UNC Chapel Hill Introduction to Economics Lecture 1 V Per cent 2039 0 W M 20 x I 1 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Year Smlm Muuknv 100711 Figure 3 llHUN in thy US z39z39unmny 19004995 Tatevik Sekhposyan UNC Chapel Hill Introduction to Economics Lecture 1 Microeconomics and Macroeconomics Microeconomics focuses on the individual parts of the economy a How households and firms make decisions and how they interact in specific markets Macroeconomics looks at the economy as a whole a Economy wide phenomena including inflation unemployment and economic growth I H May 15 2007 9 22 Economic Way of Thinking Every field of study has its own terminology 9 Economics supply opportunity cost elasticity consumer surplus demand comparative advantage deadweight loss Every field of study has its own methodology o Economics among the social sciences is the only field of study to be recognized with the award of Nobel Prize I 393 H May 15 2007 10 22 Economic Way of Thinking o Involves thinking analytically and objectively 0 Uses abstract models to help explain how a complex real world operates o Develops theories collects and analyzes data to evaluate the theories I May 15 2007 3911 22 The role of assumptions 0 Economists make assumptions in order to make the world easier to understand o It is important to decide which assumptions to make a Economists use different assumptions to answer different questions I May 15 2007 3912 22 Why do Economists Disagree Positive Economics 0 Positive statements are statements that attempt to describe the world as it is Called descriptive analysis Normative Economics 0 Normative statements are statements about how the world should be Called prescriptive analysis I May 15 2007 3913 22 Positive vs Normative Analysis Are the following positive or normative statements a An increase in the minimum wage will cause a decrease in employment among the least skilled o The income gains from a higher minimum wage are worth more than any slight reductions in employment 9 Higher federal budget deficits will cause interest rates to increase 9 State governments should be allowed to collect from tobacco companies the costs of treating smoking related illnesses among the poor I 393 H May 15 2007 14 22 Why do Economists Disagree 9 They may disagree about the validity of alternative positive theories about how the world works 0 They may have different values and therefore different normative views about what policy should try to accomplish There are some things economists agree upon let s call these principles of economics I H May 15 2007 15 22 How do People Make Decisions 1 People face trade offs food vs clothing leisure vs work efficiency vs equity gt Efficiency means society gets the most that it can from its scarce resources gt Equity means the benefits of those resources are distributed fairly among the members of society I May 15 2007 3916 22 How do People Make Decisions 2 The cost of something is what you give up to get it Go to Class or take a nap The opportunity cost of an item is what you give up to obtain that item or the value of the best alternative I May 15 2007 11 22 How do People Make Decisions 3 Rational people think at the margin Why is water so cheap and diamonds so expansive People make decisions by comparing costs and benefits at the margin I May 15 2007 3918 22 How do People Make Decisions 4 People respond to incentives The decision to choose one alternative over another occurs when that alternative 5 marginal benefits exceed its marginal costs I May 15 2007 19 22 How do People Interact Trade can make everyone better off D Markets are usually a good way to organize economic activity 0 Governments can sometimes improve economic outcomes I May 15 2007 20 22 Invisible Hand Adam Smith made the observation that households and firms interacting in markets act as if guided by an invisible hand 0 Because households and firms look at prices when deciding what to buy and sell they unknowingly take into account the social costs of their actions 9 As a result prices guide decision makers to reach outcomes that tend to maximize the welfare of society as a whole I quotwill May 15 2007 2122 Economy as a Whole at Work 1 A country s standard of living depends on its ability to produce goods and services 2 Prices rise when the government prints too much money 3 Society faces a short run trade off between inflation and unemployment I May 15 2007 22 22