Lecture Notes: Introduction to Economics

Announcements

• Student hours: Tuesday and Thursday, 3:30 to 5:00 PM.
• Chapter 1 of the textbook is posted (only the first two chapters are legally available online).
• Full course syllabus is available online; review it.
• Lab sessions start this week (Thursday and Friday) in Waters Annex.
• Lab sections are labeled 120B; match your recitation time with the syllabus.
• No tutoring sessions this week; they begin next week.

Introduction to Economics

• Economics as a Social Science

  • Studies human behavior, not just markets.
  • Examines why people make certain decisions and the influences of institutions.
  • Similar to other social sciences like political science and sociology.

• Key Aspects of Economics

  • Scarcity: Fundamental concept; resources are limited while desires are unlimited.
  • Decision Makers: Consumers (buyers, households) and producers (firms, sellers).

• Motives and Incentives

  • Economics explores motives and how they affect behavior.
  • Incentives are strategies to motivate; can include bonuses, raises, or job perks.
  • Example: New Belgium Brewery offers unique incentives (bicycle, trip to Belgium).
  • Raises are more effective than bonuses.

• Impact of Incentives

  • Incentives influence choices and behaviors in markets.
  • Can affect consumption patterns and policy effectiveness.
  • Policies need proper incentives to work, e.g., conservation programs.
  • Perverse incentives can lead to unintended consequences (e.g., Endangered Species Act).

Economics: Scale and Perspectives

• Scarcity in Economics

  • Defines economic goods (scarce) vs. non-economic goods (free).
  • Examples of scarcity: time, money, land, respect.

• Defining Economics

  • Economics studies how motives and incentives influence allocation of scarce resources.

• Macroeconomics vs. Microeconomics

  • Macroeconomics: Economy-wide issues (e.g., recession impact).
  • Microeconomics: Individual decisions (e.g., purchasing a car).

• Positive vs. Normative Economics

  • Positive: Fact-based, verifiable statements.
  • Normative: Opinion-based, what ought to be.
  • Examples provided to differentiate between the two.

Graphical Analysis in Economics

• Importance of Graphs

  • Graphs are used to visualize relationships and tell stories in economics.
  • Ceteris Paribus: Holding all else constant when interpreting graphs.

• Understanding Demand Curves

  • Represented by linear equations (constant slope).
  • Shows relationship between price and quantity consumed.
  • Derived from data (e.g., demand schedule).

• Linear vs. Non-linear Functions

  • Linear functions have constant slope; non-linear functions change (e.g., crop yield to nitrogen applied).

• Linear Equation Basics

  • Formula: y = mx + b.
  • m: slope (rise over run); b: y-intercept.
  • Example given with demand schedule to derive linear demand function.

Conclusion

• Review and practice using graphs and understanding economic concepts like scarcity, motives, and incentives.
• Labs and practical sessions will further expand on these concepts.