Core Principles 1

Sep 10, 2024

Lecture Notes: Core Principles of Economics

Introduction to Economics

  • Key Question: What is economics?
    • Economics is the study of how people use limited resources to meet unlimited desires.
    • Unlimited desires vs. limited resources.
    • Economics involves making choices because we can't have it all.
  • Common Definitions:
    • Study of people in the ordinary business of life.
    • Every decision is an economic decision.

Economics and Decision Making

  • Economic decisions occur frequently in daily life:
    • What to eat for breakfast?
    • How to spend free time?
    • Choosing a college major.
    • Many decisions are not primarily about money.

Economic Research Applications

  • Economics can address diverse questions:
    • Preventing recessions.
    • Choosing a career path.
    • Social issues like discrimination and health.
    • Everyday decisions like restaurant choices.

Learning Objectives of the Course

  • Understand how people and businesses make decisions.
  • Predict decision-making behaviors.
  • Explore decision-making factors:
    • Personal interests.
    • Class difficulty.
    • Future earnings.

Core Principles of Decision Making

Cost-Benefit Principle

  • Definition: Evaluate all benefits and costs of a choice. Pursue if benefits ≥ costs.
  • Example: Deciding to buy a cup of coffee.
    • Cost: $3.
    • Benefits: Taste, alertness, social enjoyment.
    • Decision: Buy if willingness to pay ≥ $3.

Misconceptions about Economic Decisions

  • People do not always act selfishly.
    • Other people's benefits can influence decisions.
  • People can make mistakes while following the cost-benefit principle.
    • Examples include smoking, poor financial choices, etc.

Charitable Giving and Economics

  • Charitable actions can align with the cost-benefit principle:
    • Feeling good about generosity (warm glow).
    • Belief in making a difference for a cause.

Application to College Decisions

  • Cost-benefit analysis applied to choosing a college:
    • Costs: Tuition, time.
    • Consider the benefits of attending a specific college like MSU.
    • The complexity of evaluating multiple options.

Conclusion and Next Steps

  • Next lecture will discuss why MSU may be the best choice based on cost-benefit analysis.
  • Introduction to four core principles of decision making to be covered in future lectures.
  • Encouragement for students to engage with their decision-making processes throughout the course.