Intro to Econ

INTRODUCTION TO ECONOMICS

DEFINITIONSEconomics: The study of people and their economic decisions and interactions with one another. ex) Economics can be an 18 year-old girl deciding whether or not to go to college or join the work force.Opportunity Cost: The loss of other alternatives when one alternative is chosen. Simply put, it is whatever you give up to do something.Scarcity: The conflict between infinite wants and finite resources. As a result, choices must be made about how to allocate resources. THE THREE BIG QUESTIONS What to produce How to produce For whom to produce

"Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing."- Alfred Marshall

CASE STUDIES/EXAMPLESOpportunity cost + scarcity1. Every year, thousandths of Americans die in car accidents. We could eliminate all car-related deaths by simply making cars illegal to public use. However, the opportunity cost of that would be that everyone would have to walk everywhere.2. The United States spends $610 billion on the military. We own 10 of the world's 20 carrier fleet ships. The resources that are being spent on the military are resources are not available for other uses, such as feeding the poor or building infrastructure. This example underlines the two most important economic assumptions: scarcity and opportunity cost. If we could, we would feed all the poor, build infrastructure to our heart's content and invest in the military. However, we simply don't have the resources for that. Thus, the opportunity cost kicks in.

Economic Incentives: Something that motivates an individual to perform an action; possibly perform an action more efficiently or quicker.Economic theory influences government's decision making process for public policy. The theory can be spot on, the legislation can be spot on, but if the incentives aren't properly alligned, then the public policy will have limited success.Microeconomics: analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households. It is concerned with the interaction between individual buyers and sellers and the factors that influence the choices made by buyers and sellers.Macroeconomics: Is the study of the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.

CASE STUDY/EXAMPLEIncentives1. In Vietnam, during French colonial rule, there can a time when the rat population became a concern to the government. As a result, the state gave its citizens montary incentive to kill rats. If they brought forth rat tails, then money would be given. After a while, people realized that they could actually make more money if they just simply removed the rat's tails without killing them. Furthermore, they began to farm rats as "cash crops". The rat population actually grew in response to the state public policy to try to eradicate rats. This is a prime example of how the incentives were not properly aligned; as in there were loopholes that could be exploited in the policy, even though the public policy was sound.