1. Introduction/Overview
7 Oct 2010

2.  Introductions
◦ 3 * 5 Cards
 Name
 “Callsign/Nickname” for grading purposes
 E-mail
◦ Who you are
◦ Home town
◦ Where you work
◦ Why you are taking this course
 Syllabus Review

3.  What is “Economics”?
 Influential Economists
 Math/Graphing Introduction
 Conclusion
 Note: 10 minute breaks at the top of the
hour

4.  Keep up with the reading
 Interact
 Ask questions/seek help

6.  Mankiw: “Economy comes from Greek word
Oikonomos, which means ‘one who manages
a household’”
 How does one manage a household?
◦ By making decisions!
Economics is the “science of scarcity”….a DISMAL SCIENCE!

7.  If Economics is a social science…..
 (And it’s dismal)……
 Why study it?
 What’s in it for me?

8.  Markets have made SOCIETY much better off
 In the 20th Century:
◦ US life expectancy rose from 47 years to 77
◦ Infant mortality declined by 93%
◦ Numerous diseases eradicated: Polio, Tuberculosis, Typhoid, etc
 Markets/Free Market Economy are responsible
“Economy is the art of making the most of life. Economics is the study of
How we do that!”….Gary Becker (Nobel Prize 1992)

9.  #1. Individuals will act to make themselves as
well off as possible
◦ Utility
 Maximizing utility is synonymous with acting selfishly?
 No
 Trade-Offs
 Every decision we make involves some sort of trade-off
 We may trade off utility now against utility in the future
The cost of something is what you must give up in order to get it

10.  #2. Firms (the guy selling used watches on
eBay or Microsoft) attempt to maximize their
profits
◦ A profitable firm is like a chef who can buy $30
worth of groceries and turn it into a $100 meal
◦ Firms have decisions:
 What to produce
 How much to produce
 What price to sell

11. Firms
Consumers
Come together

12.  Price
◦ Price settles the point where the number of items
for sale exactly matches the number of that good
consumers want to buy

13.  The Market is amoral
◦ It rewards scarcity
◦ It does not provide the goods we need, but it does provide the
goods we want to buy
 Prices are used to allocate scarce resources
◦ Who gets Superbowl Tickets?
 Markets are self-correcting
 Fixed prices lead to other forms of competition
 Every market transaction makes us better off

14.  Good system, but imperfect
 Free Market System is much like our system
of Individual Liberties
◦ US Democracy
◦ System that forces us to choose vaccines over
doggie birthday cakes is oppressive
◦ Communism (command economy) failed
 Controlled the lives of its citizens

15. 1. People face trade-offs
2. Cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic
activity
7. Governments can sometimes improve market outcomes
8. A country’s standard of living depends on its ability to
produce goods and services
9. Prices rise when the government prints too much money
10. Society faces a short-run trade-off between inflation and
unemployment

17. “Virtue is more to be feared than vice,
because its excesses are not subject to
the regulation of conscience.”
 Father of Economics
◦ Logic Professor
 An Inquiry Into the
Nature and Causes of the
Wealth of Nations
◦ Self Interest
◦ Division of Labor
◦ Function of Markets
◦ Laissez-Faire Economy
 Died: 1790
 Gave a lot of money to
charity
http://www.lucidcafe.com/library/96jun/smith.html

18. I happened to read for amusement Malthus on
Population, and being well prepared to
appreciate the struggle for existence which
everywhere goes on (Charles Darwin)
 Ordained Minister in the
Church of England
 Had a lot of time to spend
debating with his father
 Essay on Population (1798)
◦ Population growth would
outstrip agricultural resources
◦ Everyone would starve
 Gloom and Doom
 Became full time professor
of History and Political
Economy
◦ England’s first Academic
Economist
http://www.ucmp.berkeley.edu/history/malthus.html

19. "Gold and silver, like all other commodities,
are valuable only in proportion to the quantity
of labour necessary to produce them and
bring them to market”
 Born of Portugese –Jewish
heritage
 Fled to England
 Began working in London
Stock Exchange at age 14
 Astute thinker
 Elected to Parliament in 1819
 Read Wealth of Nations by
chance
 Went toe-to-toe with Malthus
 Best known for “Comparative
Advantage”
◦ Specialization should occur in
the area where one nation (or
entity) holds a cost advantage
http://homepage.newschool.edu/het//profiles/ricardo.htm

20.  Italian Aristocrat
 Economist/Engineer
 Mechanical equilibrium
from Engineering led to
conclusions in Economic
theory
 Challenged concept of
Utility
 Advanced theory of
Preferences and therefore
Micro Economics
 Pareto Principle
◦ 80% of problems arise from
20% of the defects

21.  Born to middle class
family in Germany
 Studied law, then moved
into journalism
 Moved to France and
became enthralled with
utopian society of
cooperative production
 Published Das Kapital
◦ Deported from France
and England
 Proponent of Revolution

22.  Studied workplace
throughout his life
 Ultimate goal: create
efficient environment
 Father of Scientific
Management
 Workers incapable of
understanding tasks;
they had to be
supervised
 Harvard based MBA
program on his
principles

23.  Born in England
 Lived through depression
 Made and lost fortunes
speculating
◦ Foundation of learning the
hard way
 Challenged economic
thought during the
period—output is
determined by demand
 Advocated government
intervention
 Theories behind FDR/New
Deal ecoonomics
containedhttp://wwwlhttp://popd22301

24.  Founder of “Chicago
School”
 Challenged Keynesian
economics
 Social responsibility of
business is to increase
its profits
 Nobel Prize in 1976
 Ideas led to Federal
Reserve’s power in
monetary policy

25.  Musician—played
Clarinet
 Studied Economics at
Columbia, went on to
Graduate with PhD
from NYU
 PhD dissertation (which
was pulled) focused on
housing bubble
 Served as Chairman of
Federal Reserve from
1987-2006

26.  PhD from MIT
 Current Chairman of
Federal Reserve (on
second term)
 Student of Great
Depression
 Professor of Economics
at Princeton University
since 1985

27.  Author of your
textbook
 PhD from MIT
 “New Keynesian”
 Critics include Paul
Krugman
 2003-2005 Served as
Chairman, Council of
Economic Advisers to
George Bush
 Has been a vigorous
critic of stimulus
package
http://gregmankiw.blogspot.com/

28.  PhD from MIT
 Widely cited and
published
 Considered #6 out of
100 top intellectuals
 Theory of New Trade
◦ Advocates protectionist
measures
 Nobel Prize 2008
 “Great Unraveling”
◦ Bush policies led to
economic turmoil
http://krugman.blogs.nytimes.com/

29.  PhD from MIT
 Professor at University
of Chicago
 Author of
Freakonomics
 Controversial studies
◦ Crime
◦ Society
◦ Abortion
http://freakonomics.blogs.nytimes.com/