Introduction to Economics - Essentials

Introduction to Economics

• The book is titled "Essential Foundations of Economics" Ninth Edition, by Bade and Parkin.
• Economics is about the choices individuals, businesses, and governments make in the face of scarcity.
• Economists try to understand and predict the effects of economic forces, using the scientific method.

Scarcity

• Economic questions arise because human wants exceed available resources.
• Scarcity necessitates making choices among alternatives.
• Choices depend on the incentives present.

Economics Defined

• Economics is a social science studying choices by individuals, businesses, and governments.
• These choices are influenced by scarcity and incentives.
• Choices are coordinated through various arrangements.

Branches of Economics

• Microeconomics studies individual and business choices, their interactions, and government influence.
• Macroeconomics examines the aggregate effects on a national or global economy.

Key Economic Questions

• How do choices determine what, how, and for whom goods and services are produced?

• When do self-interest choices also promote social interest?

• What, How, and For Whom? This focuses on what goods are created, how they are produced, and who receives them.

• Can Pursuit of Self-Interest Be in Social Interest? This examines whether individual choices benefit society as a whole.

Illustrative Economic Topics

• Globalization: The expansion of international trade; examples include Nike producing shoes in other countries, or Toyota making cars in the US,
• The Information Revolution: This focuses on the development of computer chips and programs.
• Climate Change: Examines the choices made about producing and using energy and whether those choices benefit society.
• Government Budget Deficit and Debt: The analysis of U.S government deficit and debt since 2000. The debt has risen substantially and there is concern about paying it back.
• Retirement and Health Care Benefits: How increasing costs of benefits for older Americans might affect future budgets.
• Student Loans, Disney vs Netflix, regulating tomatoes from Mexico, or doing charity work: These are examples of everyday decisions that can be evaluated using an economic lens.

The Economic Way of Thinking

• Choice is a tradeoff: Every choice involves giving up something else.
• Cost is what you give up: Opportunity cost is the value of the next best alternative.
• Benefit is what you gain: Benefit is measured by the value of what is gained.
• Rational choices are made by comparing costs and benefits: People make sensible decisions.
• Most choices are "how much" choices at the margin: Decisions involve adjustments rather than complete shifts.
• Choices respond to incentives: Rewards or penalties influence behavior.
• Marginal Cost: The opportunity cost of a one-unit increase in activity.
• Marginal Benefit: What is gained by taking one more unit of something. A rational choice occurs when marginal benefit exceeds or equals marginal cost.

Economics as a Social Science

• Economists use the scientific method to understand and predict economic forces.
• Economists ask a question or examine a puzzle.
• Economists use models to explain facts.
• Economists check model predictions against reality:
  • Natural experiments are situations in real life where a single variable changes while other conditions remain consistent.
  • Statistical investigations look for correlation or correlation among economic variables.
  • Economic experiments put people in decision-making simulations to observe their behavior

Economics as a Policy Tool

• Economic analysis can help evaluate policy options.
• Economics analyzes positive questions and normative questions (what 'ought' to be).
• Economics provides tools, but can only help with implementing positive goals.

Economics as a Career

• Economics majors can work as economists, financial analysts, and budget analysts.
• Economics majors can be successful in many fields, such as business, law, and public health.
• Jobs are expected to grow for economists and other related positions.

Conclusion

• Economics is a practical and applicable discipline
• It helps us make informed decisions in a variety of areas of life.