IntroductionThe Principles

These slides supplement the textbook, but should not replace reading the textbook

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Misconceptions

AutomationCurrency

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Two Opposing Forces

Globalists vs. Nationalistsor

Collectivists vs. Individualist

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What isMacroeconomics?

Macro means large – it deals with the performance, structure, behavior, and decision making of the whole economy.

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What are some examples of

Macroeconomics?• Inflation• Unemployment• Money and banking• Economic growth• Business cycles

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Who isFriedrich Hayek?

He is an Austrian economist whose main premise is that economic planning will eventually lead to economic stagnation and loss of personal freedom.

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Who isJohn Maynard Keynes?He is an economist who believed that government intervention in a stalled economy may be necessary to stimulate demand for recovery.

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What isopportunity cost?

That which is given up in the best alternative choice when making a decision.

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What are two types of opportunity cost?

FinancialActivity

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What are some examples of

opportunity cost?The money you are giving up to be a student.

An activity you would rather be doing than being in class.

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How is opportunity cost estimated?

Opportunity cost is subjectively estimated by the individual decision maker

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What is the opportunity cost of

cleaning your room?It’s greater on sunny days than on rainy days

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What is the opportunity cost of a city to use local taxes to pay for a park?

The best alternative foregone by not building the park

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What is your opportunity cost of attending college?

If you make $300 a week, but you expect you could make $500 without school - your opportunity cost is $200

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Should you paint the room yourself or hire someone?

If you paint the room yourself, what is your opportunity cost? How much will you pay someone to paint?

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What is the opportunity cost of low interest rates?Retired people and others make less money on their savings.

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What does the term “margin” mean?

Margin means the last unit or the last increment. For example, MR is the revenue received on the last unit of output.

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What ismarginal analysis?

Economists use marginal analysis to predict cause and effect. For example, how many sodas will a person buy when standing in front of a soda pop machine?

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What is an example of marginal analysis?

You will decide to do something if your marginal benefit exceeds your marginal cost

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How many soda pops will a person buy?

A consumer will purchase additional sodas as long as his marginal benefit (on the last unit) is greater than his marginal cost (on the last unit).

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What is leverage?

Leverage is a way of multiplying a gain or a loss.

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What are examples of leverage?

•Buying stock on the margin

•Borrowing money to grow a business

•Hiring employees•Recording this lecture

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What is Price Elasticity of Demand?

A measure of demand responsiveness to a change in price.

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When does something face an elastic demand curve?

When a business owner raises the price of his product and total revenue decreases.

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When does something face an inelastic demand curve?

When a business owner raises the price of his product and total revenue increases.

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What ismoral hazard?

Moral hazard exists when someone has a tendency to invest in something or pursue an activity without regard to potential losses.

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What isan example of moral hazard?

After 2008 large financial firms were bailed out by the government shielding them from their greed and protecting them from losses.

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What isa consequence of

moral hazard?To minimize moral hazard the government has increased regulations over large corporations.

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What is rent seeking?

Resources are used for personal gain without benefiting society.

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What is an example of rent seeking?

Companies hire lobbyists to petition Congress for favors.

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What is theLaffer Curve?

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“Anyone can arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury …”Judge Learned Hand

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What is stock and flow of

economic analysis?

Flow is time dimensional – Stock is a point in time.

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What are other names for stock

and flow? Short run vs. long runStatic vs. dynamic

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Will an increase in taxes lead to an

increase in government revenue?In the short run yes, in the long run maybe not.

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What is Economies of Scale?

As a company grows its costs decrease up to a certain point.

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Should a farmer pay $50,000 for a

new tractor?

That depends on the size of the farmer’s operation.

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Why do large corporations favor

minimum wage laws and small firms do not?

Economies of scale differences

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What is price, cost, revenue and profit?

• Price is what consumes pay• Cost is what producers pay• Revenue is total money in• Profit is money in minus money out

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What is Gross Domestic Product?

The dollar value of all new and final goods and services produced in a given year.

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How do we measure growth?

Gross Domestic Product (GDP)

END