Transcript Eco 101: Chapter 1 notes - Politechnika Wrocławska

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Final Test – multiple choice
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Your presents at lectures is compulsory
but… you have an exam.
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Your presents at classes is obligatory
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„Microeconomics” Prentice Hall Publishing
House, June 2004 ISBN: 0-13-191207-0
Czarny B. „Podstawy Ekonomii”
Begg D., „Economics”
Friedman M. „Free to Choose” (Wolny wybór)
Mises L. „Human Action”
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http://www.ioz.pwr.wroc.pl/Pracownicy/Chodak/
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What is the main purpose of economics?
Economics studies how individuals and
societies use limited resources to satisfy
unlimited wants.
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Pre-classical economy - Ancient economic
thought, Scholasticism, Mercantilism,
Physiocrats
Classical school - focuses on the tendency of
markets to move to equilibrium – Adam Smith
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Austrian school (Carl Menger, F.A. Hayek,
Ludwig von Mises)
Keynesian school (John Maynard Keynes)
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Keynes vs Hayek: round two
"Fear the Boom and Bust" Hayek vs. Keynes
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Presentation about broken window fallacy
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Milton Friedman speech about The Free
Lunch Myth
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scarcity. (film)
individuals and societies must choose among
available alternatives.
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the cost of any activity measured in terms of the
value of the best alternative that is not chosen (that
is foregone)
has been described as expressing relationship
between scarcity and choice
is assessed in not only monetary or material terms,
but also in terms of anything which is of value
may be assessed in decision-making process of production. If
the workers on a farm can produce either 1 million pounds of
wheat or 2 million pounds of barley, then the opportunity
cost of producing 1 pound of wheat is the 2 pounds of barley
forgone
(Film)
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Assessing opportunity costs is essential to
calculate the true cost of any course of action
Economic cost=accounting cost +
opportunity cost
Example:
◦ starting capital 100 tys. PLN,
◦ Run your own business 1 year
◦ Profit 25 tys. PLN
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individuals select the choices that make them
happiest, given the information available at
the time of a decision.
Homo economicus, or Economic human, is the
concept of humans, who are rational and will
always attempt to maximize their utility - whether
it be from monetary or non-monetary gains.
This theory stands in contrast to the concept of Homo
reciprocans, which states that human beings are primarily
motivated by the desire to be cooperative, and improve their
environment.
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economic good (scarce good) - the quantity
demanded exceeds the quantity supplied at a
zero price.
free good - the quantity supplied exceeds the
quantity demanded at a zero price.
economic bad - people are willing to pay to
avoid the item
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land
◦ natural resources, the “free gifts of nature”, not
processed goods
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labour
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capital
◦ the contribution of human beings
◦ machines, buildings, tools, plant and equipment
◦ “financial capital” is used to buy non-financial
capital
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(film1)
(Film2)
Economic Resource
Resource payment
land
rent
labour
wages
capital
interest
Branch of microeconomic theory that studies how
information affects an economy and economic
decisions.
Information has special characteristics.
• It is easy to create but hard to trust.
• It is easy to spread but hard to control.
• It influences many decisions.
• You can’t estimate it’s value before getting to know
These special characteristics (as compared with other
types of goods) complicate many standard economic
theories.
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positive economics
◦ attempt to describe how the economy functions
◦ relies on testable hypotheses
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normative economics
◦ relies on value judgements to evaluate or
recommend alternative policies
◦ often used by politicians
(film)
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scientific method
◦ observe a phenomenon,
◦ make simplifying assumptions and formulate a
hypothesis,
◦ generate predictions, and
◦ test the hypothesis.
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Cēterīs paribus (Latin phrase), literally
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abstraction in economics
translated as "with other things the same." It
is commonly rendered in English as "all other
things being equal."
◦ used to simplify reality
(film)
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Hasty generalization
◦ occurs when it is incorrectly assumed that what is
true for each and every individual in isolation is true
for an entire group.
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post hoc, ergo propter hoc fallacy
(association as causation)
◦ occurs when one incorrectly assumes that one event
is the cause of another because it precedes the
other.
e.g. As ice cream sales increase, the rate of drowning
deaths increases sharply.
Therefore we can assume: ice cream consumption
causes drowning.
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microeconomics - the study of individual
economic agents and individual markets
macroeconomics - the study of economic
aggregates, studies economy as a whole
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direct relationship (film)
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A linear relationship possesses a constant
slope, defined as:
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If an equation can be written in the form:
Y=mX+b, then:
m = slope, and
b = Y - intercept.
„The art of economics consists in looking not
merely at the immediate but at the longer
effects of any act or policy; it consists in
tracing the consequences of that policy not
merely for one group but for all groups.”
Henry Hazlitt
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As soon as A observes something which seems to him to be wrong,
from which X is suffering, A talks it over with B, and A and B then
propose to get a law passed to remedy the evil and help X. Their law
always proposes to determine what C shall do for X or, in the better
case, what A, B and C shall do for X. As for A and B, who get a law to
make themselves do for X what they are willing to do for him, we
have nothing to say except that they might better have done it
without any law, but what I want to do is to look up C. I want to
show you what manner of man he is. I call him the Forgotten Man.
Perhaps the appellation is not strictly correct. He is the man who
never is thought of. He is the victim of the reformer, social
speculator and philanthropist, and I hope to show you before I get
through that he deserves your notice both for his character and for
the many burdens which are laid upon him.
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www.oswego.edu/~kane/eco101.htm
www.wikipedia.org
www.investopedia.com
Czarny B. Podstawy ekonomii
Personal Issues
Government should not censor speech, press, media or Internet.
Military service should be voluntary (no draft).
Repeal regulations on sex for consenting adults.
Repeal laws prohibiting adult possession and use of drugs
There should be no National ID card.
Economic Issues
End "corporate welfare." No government handouts to business
End government barriers to international free trade
Let people control their own retirement; privatize Social Security
Replace government welfare with private charity
Cut taxes and government spending by 50% or more
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1.
http://ecedweb.unomaha.edu/Dem_Sup/econ
qui2.htm
This picture shows a demand curve for oranges in a given locality. Please, consider the following events
and then illustrate on the chart the impact they would have on the demand:
A) the consumer incomes increased
B) the price of tangerines increased
C) the price of knives which are used to peel oranges decreased
D) orange juice became very trendy
E) The wife of the prime minister became a shareholder of a few fruits wholesalers and, incidentally the
government imposed an obligatory programme „the orange for every child”
2. This picture shows a supply curve for bread in a given locality. Please, consider the following events and
then illustrate on the chart the impact they would have on the supply :
A) VAT rate grew
B) The bread production was subsidized
C) The bread baking technology was improved
D) The price of flour decreased
E) The bakers salaries grew
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Let there be a supply curve of petrol: Q=P and demand curve: Q=-P+20. A new tax is
introduced: every single litre of petrol is taxed with a fixed sum of 2 PLN when sold.
Illustrate the impact of the new tax on the chart. Calculate the volume of production in
litres before the tax was introduced and after the introduction of the tax. Calculate the
new price. Calculate budget income due to the new tax.
Let there be a supply curve: Q=P-1, demand curve: Q=-P+5. The government
subsidizes the production of beef – every kilogram is subsidized with an extra zloty.
Calculate the equilibrium price before and after Introduction of the subsidy. How much
will the taxpayer have to lay out to cover the cost of the new subsidy?
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What are the names of the two major economics
schools?
Who are the statists?
According to the Austrian School, what are the
causes of economic problems?
How can you characterize the market process?
What would happen if every single person got a
million dollars?
Why are minimum wages not protecting the most
vulnerable workers?
http://www.youtube.com/watch?v=rI0vZ5jBA9o