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Economics Dr.

Sauer

Introduction to Economics I. What is economics? Classic definition: Economics is the study of the use of ________________ resources which have _______________ uses. What do we mean by scarce? None of us can have as much as we want of all the things we want. - Justice Oliver Wendell Holmes Human desires ________________ our resources. Resources have alternate uses. ex: time money water your skills Economics studies the __________________________ of the decisions that are made about the use of scarce resources. Decisions are made by individuals, firms, and governments. Macroeconomics is the study of _______________________ phenomena. Microeconomics is the study of ___________________ making decisions and interacting in markets. _________________________________________________________________________________ Course Topics: The Basics: Government: ~ How Markets Work ~ The Role of a Good Government ~ The Importance of Incentives ~ Problems with Government ~ Information Economics ~ Voting and Special Interest Groups

The Economy: International Economics ~ Standard of Living ~ Exchange Rates ~ GDP, Inflation, Unemployment ~ International Trade ~ Money and Banking ~ Development Economics ~ Finance __________________________________________________________________________________ II. Economists as both Scientists and Policy Advisers A. Scientists Economists approach the study of the economy with ____________________________. - observe the world - devise theories and formulate hypotheses - collect data - test hypotheses 1

The economists lab is the _______________. - cant design experiments for the whole economy - can study the results of random events and policy changes The economy is a ____________________. It is constantly changing and what was true in the past may not be true in the future. However, there are several ____________________ that can help you to understand the economy, even if you cant predict its future. B. Policy Advisers When economists are trying to _______________ the world, they are ______________. When they are trying to help _____________ it, they are _____________________. Why is unemployment higher for teenagers than for older workers? What should the government do to improve the economic well-being of teenagers? How do economists affect policy? ~ Federal, State, and Local governments directly ________________ economists. ~ Some economists research and writings often affect policy _________________. ~ Sometimes their advice is _________________. Making economic policy in a representative democracy is a messy process. - economic advice is only one part of the information considered by policymakers ________________________________________________________________________________ III. The Economic Way of Thinking A. every action involves an opportunity cost Opportunity cost is whatever must be ______________________ for the action. - time, money, resources, etc What is your opportunity cost of being in class today?

What is the opportunity cost of your college education?

What is the opportunity cost of using tax dollars to pay for national health care?

Economists say that there is no such thing as a free lunch. All of life is about _______________ and opportunity costs. 2

B. recognize tradeoffs and potential unintended consequences {various viewpoints from affected parties} Because we live in a world with _________________ resources and _____________wants, we will always face tradeoffs. - sometimes they are not obvious right away An unintended consequence is an outcome that is __________________ by a particular action. - usually referring to a _____________________ - the policy / law may have achieved its intended purpose and also some unintended consequences - the policy / law may not have achieved its intended purpose and only resulted in unintended consequences

C. incentives matter Incentives ____________________ our decisions. If there is a ______________ in the benefits or costs associated with an action, people are likely to ______________their behavior. Ex:

D. marginal analysis Weigh the _________________ benefits against the ________________ costs. You are at your usual Friday night party. It is now 11pm. What factors into your decision to stay or leave?

You are still at the party and it is now 1am. What factors into your decision to stay for another hour?

_________________________________________________________________________________ Summary: Economics is about the consequences of the decisions that are made about the use of scarce resources. Economists sometimes act like scientists and sometimes like policy advisers. Economists think about the world in terms of opportunity costs, unintended consequences, incentives, and incremental decisions. __________________________________________________________________________________ 3