hello and welcome to introduction to macroeconomics so this uh this lecture is the first lecture to talk a little bit about what macroeconomics is and what economics is um because it's I don't know economics is really important it's kind of how the world works and macroeconomics is really I think one of the most useful classes you can take in college or anytime because it really explains basic concepts that will help you understand Uh current events policy how to make good economic decisions for you and also for the country for your city for whoever so macro is really important to understanding the news or the world um which is a little different than microeconomics some of you might have taken microeconomics which is equally cool all right it's like I have I actually have two daughters and I love them both equally and amazingly but they're very different that's how macro and microeconomics are if you've taken microeconomics your talks what's really important about how companies work because I was late on I'm turning it off it's really bothering me um it's about how companies work and how pricing and individual decisions are made in marketing in fact if you have not taken micro especially if you're going into management or marketing you really need to take micro I don't know how you can be a manager or if you want to run your own business um but macro is about how the world works I know larger scale so let's talk a little bit about um about what the the different about economics in general and why it's so important all right so I'm going to turn on what we're going to be using the PowerPoint during this presentation so let me go to uh that and hopefully it will come up properly technology okay I think you can see this all right it's weird so I'm using this is Google me to do this and the reason I'm using Google me is it has really good file compression so apparently it's easy for you to you to to use sorry let it play from start but um the downside to Google meet is two things on my end one is once I start talking to you I can't stop there's no editing I can't pause it so as you'll probably I can already hear her coming my dog pip sometimes makes a little um she makes a guest appearances and I can't stop the video to let her in and out because behind me is the door that goes to my backyard where she likes to go in and out so and sometimes if I you know something happens I we just roll with it um the other thing is is that when I'm talking and presenting like I am now I can't see myself at all I know I think you can see me next to the whatever we're presenting um but I can't see myself so it's kind of a weird sensation just talking into a camera and that's where we're at okay so this is PIP break number one where I let her out hold on one second go out all right I'm sure she'll be back in in a second because it is uh here when I'm making this video it is snowy and a bit cold not too cold like 30 degrees out which is honestly pip weather all right so during the semester we're gonna be using schoology a lot and I'm giving you all PowerPoint as an outline for each chapter and during these lectures I'll be going over the Powerpoint that way when we meet in live we won't have we won't um I'm gonna assume that you have watched all the lectures and that way we can just talk about more we'll have more discussions you know the good thing about doing it this way last semester or when I did it before was that when we when I lecture on this video it allows you to posit um I encourage you to take notes and you can pause it to take notes you can rewind things um it makes it a lot easier um to like focus on the material where we have class discussions it's going to be a lot more lively all right so let's go to the next thing so what is economics well I really like this definition economics is the study of how human beings coordinate their wants and desires given the decision-making mechanisms social customs and political realities of the society there's a lot to unpack in that definition and it's really important because economics is it's so much but it's who gets what and it's about how to make the best decisions for you or your country or whatever and it's taking into the reality of our world you know economics is a science but it's a social science which is different than say math or chemistry and the thing I mean I actually love math chemistry not so much but um I the thing I really like about economics is that it has the man it has like the the hard science and the social science part because there's no one right answer when it comes to economics because as an economist and you are all going to be now officially Economist is that you being an economist is the ability to take in all the different factors and weigh them to make a good decision you know in math three plus three is always six but in economics tariffs good idea bad idea always a good idea always good idea no you don't know sometimes tariffs could be a good idea a tariff is a tax on imported good sometimes tariffs are terrible ideas you just it depends on what's going on are you starting a trade War and so there is no right exact answer and so more people that know economics the more people that can understand it the better decisions that can be made but it's a really exciting science because things do change and there we get new information and we um and we get to try to make the best decision we can and influence that all right so let's that's my little you can tell I'm very passionate about economics which is why it's a good thing I teach economics right all right so let's say it's the study of how human beings coordinates their wants and desires what does that mean well that means who gets what right if I want a giant house and a boat I actually don't want a boat I'm very seasick with boats but if I you know if I want different things well how do I decide how do we decide who gets what and if you think about it how do we decide who gets what well it's usually about money right that's usually how things are allocated is by money um and um and why can't we have everything we want because and the truth is we're going to talk about the next slide is there's it's called scarcity but the truth is there isn't enough theoretically to go around um you know we're going to talk later in the semester is there enough to go around maybe there is enough maybe it's allocation of resources but right now we're not in a magical Society where people can just have replicate whatever they wanted if you've seen um Star Trek or other science fiction movies sometimes they have like where everyone can just go to a machine and it makes whatever you want well we don't have that there's only so much resources so there's different ways to decide who gets what um you know money's better than some other ways violence can be a way ripping you know whoever can be fight for things um that happens sometimes right and sometimes there is violence when people only have certain resources and so people end up fighting over it and the strongest person gets it you know so in the United States we use money hold on let's put back in at least it gives us a second to take a break come on all right all right she wants a treat but she's not gonna get one because if she does then we'll start a whole thing okay you can stay there um about money so and so um we use money but sometimes we use other things like if you think about um dorm rooms you know sometimes dorm rooms are assigned by lottery so that can be a way to allocate things you could also have first come first serve so if um there's tickets to something whoever line or gets online and gets the tickets first I don't know if any of you guys have gotten Lollapalooza tickets but um I've spent many many a day sitting there hitting refresh refresh refresh at 10 A.M on like that Tuesday morning or Wednesday morning to try to get tickets for my daughters um it can be first come first serve um and so there's you know if you get if you get in line first if you so there's different ways we allocate things um but for the most part it involves in our country money so but economics is you know things have to be allocated some way how can we do it and government economics is how can we do it and for you how can we do it best and most efficiently I would argue fighting over things if we had fighting is the way we allocated resources it's not the most efficient way and it's not the best way for our economy I would say that is a bad bad thing so doing it you know how can we do it um and so that's one of the main factors also this part of this definition is given the decision-making mechanism social customs and political realities of society and this is a really important to remember is that economics isn't just cut and dry there isn't just one answer we have to take into politics social Customs you know um you know what's going on with our government what's going on in the world how we feel about things you know it's one thing for um you know to to say um you know like we'll take tariffs for example to have a trade War let's put taxes on Goods that come into our country because I'll be better for our companies because it'll make our companies you know less um less expensive compared to things Goods that are imported but what if that starts a trade War and what if that turns into a war you know or what if it turns into people losing their jobs who import those things you know or what if um you know but but some political parties or different things might be single trade Wars or good some people say trade Wars are bad some people you know there is a lot of politics and and you know what there's always one thing we're going to talk in this class A lot about is there's always well okay not always some things are just wrong but in economics there's usually a point on both sides and one of the things I want you to take away from this class is that you want you when people tell you things I want you to be able to analyze both sides of that equation so if people say you know what we should have tariffs I want you to say okay in my mind okay well the good thing about tariff star it does make you know Goods that are made in this U.S less expensive so it could help American jobs but the bad thing about tariffs is it makes Goods imported into our country more expensive and so that hurts car companies because they import a lot of the car parts and steel and so cars are going to cost more money you know car companies people might lose their jobs you know so which which is the right answer well you have to weigh the pros and cons and so it's very important it can being a good Economist is being very thoughtful and I think at the end you know that you won't my goal is that you won't just say oh okay that's good or bad that you will decide right you will think and you always have to look for the pros and cons because there always are and no matter what political side you're on no matter what things you believe there always are pros and cons and and then you can make your decision but then you can make if you're an economist you make it a reason decision um you know there's things like um should we sell um babies okay that sounds crazy right we should not sell babies like like really people could just have babies and sell them but if you think about it you know there's a shortage of babies people want to adopt babies they don't have babies if someone has a baby and if people could sell their babies then there'd probably be a lot more people having babies and then the people who sell their babies could have money and then they would earn some income and the other people would have a baby so it seems like that could work but do we sell babies no we don't sell babies because and this is the thing you know and our minds we're like oh selling babies of course we don't there's a lot of reasons we don't but you know but you know you have to think the whole story through and then we think well people are not like selling Goods that's what we believe and I I stand by that you know people aren't like that so even though there could be some economic reasons that okay well it would increase the you know if we were just like whole like just thinking that way you know we could think babies you know I wish it's all babies but no we don't sell babies even though there's a shortage of babies well that has a lot to do with our social Customs you know political customs and in our like our ethics and and how we feel things should be done so all of that goes into economics so you know when decisions are made um there's a lot that goes into it and it's important to realize those those things about society and then we make our decision and I think the decision is correct that we do not tell babies but then if you think about it you can pay someone to be a surrogate mother and you can pay them extra you know so we do pay for some things we don't allow others it gets kind of wishy-washy um but that's economics it's wishy-washy there's there's a lot on both sides so we have to take all that into account in economics um which again is why it's really exciting all right so the three Central coordination problems any economy must solve are what and how much to produce how to produce it and for whom to produce it so basically what should be made who should how it should be made and and for whom who should be who should we make it for now every economic system does this some do it better than others throughout history every economic decision Echo academic system did this and again some were more efficient less efficient than others you can have governments now in some countries that are honestly not very well-run governments and they do not do a very good job of this and people end up starving or there's not enough Goods to go on or there's a huge unemployment but they do have to deal with these problems and so as a as an economist we think how can we do this best most efficiently that's the best for our country or ourselves or our company um so um you know in our our economy we have in the United States basically a free market economy which doesn't mean that it's you can do anything right it doesn't mean that I think it's important to to realize in um in micro and I might this semester too I don't know but in microitalk we do a whole thing with history of Economics which I think is really important because you know sometimes we hear about um you know U.S free market rah-rah yeah we are free market but we're not totally a hundred percent as they would call Adam Smith classical Economist you can just let businesses do whatever and leave the market alone the government should stay out the government is involved we have a bit of you know there's there's socialism well some of socialism is the government being involved for worker protections so in the U.S for example two-year-olds four-year-old six-year-olds are not allowed to work and they used to be during the Industrial Revolution two-year-olds will did work in factories they were well known to run under looms to help tie broken pieces of yarn um we don't allow that now and that is the government getting involved more of like a a keen a socialist uh aspect to our Keynesian which we talked about which is a type of Economics um the government's involved and that we have worker protections you know I don't expect to be killed on the job and if I am killed on the job then there would be some sort of um you know something will be provided for my families which was not true when it was back in the day back in the industrial revolution when it was more leave the market alone businesses can do whatever they want if you die you die that's the risk you take well that isn't true so there is you know our economy is free market but we also include things that the government does do some regulations to make for health you know safety regulations for things we think of what we think is a society 10 year olds should be in school and not working and actually as an economist that makes a lot of sense because the more educated your population the more productive they are so it works both ways but so and um you know in our country we are mostly free market which means that the government doesn't decide what and how much to produce how to produce it for whom to produce it companies do but the thing that's kind of exciting is can a company produce anything at once well of course it can but but at the end of the day what does the company have to produce in our country they have to produce things that we as consumers will buy so something called consumer Serenity and consumer sovereignty is that we have to um they have to make what we want which is kind of exciting uh because like or the consumer is King or queen because a company can make as many of these markers as they want but if we won't buy them they're going to go out of business so even though we have a free market we do have a free market economy it's a balance between businesses and which consumers want to buy um you know how to produce it is up to individual companies they try to be as efficient and profitable as possible um or else they might be go out of business and for whom to produce it you know who is their market and that's decided in our country by businesses with consumer sovereignty with consumers involved that is not true in every economic system some economic systems the government might own um companies or decide in more communist style economies the government might specifically tell companies what to produce how to produce it and for whom to produce it during the former Soviet Union times the head Central planners and in China they still do this to an extent they are essentially planned economy um but it's they do have free market economy blend in there um but in the traditional communist model they would say car company this is how many cars you're going to make these Central planners so it's for men that decided they would meet and say this year we're having gray cars and you're going to make 200 000 of them we're also having blue pants pants factory only blue this year and we're going to make a million pair of pants and then this and so that was the government deciding what to produce how much to produce or whom to produce it did not work very well those men sitting around might not know I mean first of all there wasn't much fashion because I mean really like one shirt would be made that year for the whole population um things like that cars and they weren't necessarily if you worked for those companies you were told what to do you were not Innovative workers did not feel very productive they got paid what they got paid no matter what so people were not very productive they were not Innovative and that system pretty much the very true communist system it has pretty much failed um because of parts of it have failed because of that if you look at communist systems today like China the Chinese government is very much involved in the economy but it doesn't make all the decisions there's still most companies have some autonomy to decide what to produce how to produce it people can make a lot of money they're very wealthy people that have made money in China yet the government does have a lot of oversight and control so it's a mix and I think the thing to take away is right now every government every economic system is a blend of different things you know the us we're very free market but at the same time we have some socialist things where the government has does take participate in our in regulating businesses making sure things are safe um setting a minimum wage and things like that then you have other countries that might be even more socialists where um you get paid maternity or parental leave you get paid leave um you know if you lose your job you get unemployment benefits for a long time you might have housing provided by the government so that no one's homeless so those kind of countries are even more on the Continuum of having more socialism then you have countries that are very socialists like Cuba where education is free all the way through you know college dude you can be a doctor where your apartment is provided to you but at the same time you don't have any rights to choose a different one or you know you have to do what the government says you give up a lot of autonomy the government has a lot of control and that doesn't necessarily lead to a more efficient economy and you have like China which is communism but also at the same time they have some socialist also socialism you know taking care of workers they have those kind of protections and at the same time they have free market so every um we can have a whole entire semester class on different economic systems in the mix but I think for you to remember the important thing to remember is there's not one system there's not one right answer there's not you can't but you just can't say free market is the only way to go well 100 free market means children can work people can get you know there's no no there's a mix a blend and the blend is always kind of Shifting with politics it's shifting with research it's shifting with our Workforce it's shifting with technology all right so there's not one economic system it's different per country and it's different each year by What We Believe by what we learn see economics is so exciting all right this is vascarcity as I talked about before it just means that we only have so many goods and so we have to figure out who gets what um it is always changing and it really changes a lot to do with technology um there was a Thomas Malthus there was a famous economist hundreds of years ago who said we eventually were going to die everyone's going to die because we were going to run out of land as the population got larger to grow crops well it didn't end up happening because of technology technology changed so much that allows us to make a lot more food a lot more efficiently to support higher populations so you know different Goods that we have that are available are changing what we want what we desire and goods is changing you think about my house today versus my house house 100 years ago very different right so things that we want our services are always changing but there's always some kind of scarcity and so we have to figure out who gets what all right so this is brief micro versus macro I talked a little at the intro anyway is micro is the study of individual choice um and how that choice is influenced by economic forces where macro economics is a city of the economy as a whole does it really matter yes and no one it matters because people will always ask you oh are you taking micro or macro so it's good to know that you are taking macroeconomics and people ask me all the time too and I'm thinking you don't even really know the difference so why are you asking also in the real world there's no macro in micro they work together right it isn't like they all work together you don't have GDP which is a macro thing you don't have how much a country produces without having companies produce things and companies producing things as a micro thing so in the real world they're all just economics but for studying they really it does make sense to have it in two different um two different worlds because micro if you've um I said is is really about how companies how people decide to buy Goods it's about things like elasticity if you don't know that oh it's very exciting which is how people respond to price changes um in Goods how people decide to buy things um you know how to um you know how to change markets and things like that how to do pricing properly um gosh we talk about like so so much of micro and then in macro we talk about the whole economy so in this class we're going to talk about things like unemployment of a country why do people not have jobs overall we're going to talk about gross domestic product or GDP which is how much goods and services are produced in a country in a year these are Concepts that are really important to understand because they help you understand how the economy is going by the end of the semester you should be able to just see on your little news thing that pops on your phone or whatever like GDP went up by three percent you're gonna know is that if that's a good or bad thing instead of being like I don't even know what that means you're gonna like oh that's a good or bad sign which is good to know so these are going to give you the tools of understanding how your economy is going so that when someone tells you you know oh the economy is terrible you could be like well you know actually you know if you look at these main things it isn't it's doing quite well or you'll say if someone's like oh everything's great you can say well actually it's not because not everyone understands basic economics and as you as we all know some people have agendas and so you can understand it yourself so that you don't fall under anyone's Elsa's agenda so we're going to be studying the economy as a whole papaya Pip's name is PIP pippy my dog and I sometimes call her papaya just for fun pie you're not going out and you're not she knows if any of you guys have a dog I'll try to show her to you hello if you guys have a dog dogs are very smart so if you can tell when I'm talking into the computer that I don't want to be bothered so this is like her like plays if she whines enough that I'll give her a treat to go away and sometimes I have to admit it works I know okay so anyway that's the difference between micro and macro and again we're in macro I encourage you to take both I think every person in the entire world if they just took both of these classes would make the whole world to be better off we may make better decisions okay so micro is pricing decisions on what to buy and then macro we're gonna talk about inflation unemployment growth things like that all right so thinking I already talked about this so thinking like an economist does involve analyzing and thinking like an economist is I think unbiasedly the best way you can think because it really Compares your costs and benefits and this is one of the most important things you're going to learn right here okay so in this class we're going to have life lessons and these are things that will help your entire life if it was me in my notebook I would have like a page where I would put like life lessons at the beginning and then just sort of list it there because those are things I want you to always remember you know there's some classes you learn stuff at the end of the semester or the end of or even after the test you're like oh pop that out there are some things in this class I want you to honestly always remember stop it's not many of them they're not hard to remember and they will make the quality of your life better all right so one of these is about how to make good decisions Now using economic reasoning this helps you make decisions in your personal life in your professional life and in like for your company or your world hi stop um marginal so here's the thing in order to make a good decision you need to compare your marginal costs with the marginal benefits and then you and then what and then if your costs if the cost of the decision is higher than the benefit you don't do it the benefit is higher than the cost you do it now the thing is it's very important to understand the word marginal we will use this thing Mark with the word marginal again but marginal is just to know in world the world means additional okay so when you think marginal you're going to think additional costs additional benefits the most important thing is you do not look at sunk costs so sunk I wish I could switch over to my whiteboard let me see if I can all right if I stop sharing this and I go to my whiteboard I love my whiteboard all right so I have this whiteboard hopefully you can see it I actually don't know what it looks like on your side that's the only thing is I can't tell if this is like big whiteboard or a small whiteboard I don't know all right so anything we have something called and it's going on there but sunk cost s so it's s-u-n-k I think it's going to be in a slide in a second but Sun cause okay these are all ready incurred or paid oh well the only thing I like about a whiteboard you see this pen is my waiver pen it's got this little button here and if I press this button it turns it off when I'm writing and it's really hard to hold the pen without pressing the button because I don't understand why it's there okay so you want to look at your marginal costs okay marginal costs and your marginal benefits okay so and then okay so selling cost means it's already happened so let's say I'm trying to decide whether or not to come to class all right and I'm a student well actually I could just be me all right so I'm trying to decide I'll be a student it's easier so I'm a student and I'm like should I go to econ today and listen to you know Professor Clark talk all the time here's how you make a good decision what's the marginal cost of me going to class Well normally if we let's say we're meeting in person normally the cost of uber B actually getting up right depending on um getting up I might be missing out on sleep you know like getting up getting you know sometimes getting out of bed can be kind of tough um I could be getting up driving so there could be gas involved or walking if you're in the dorms and man it is cold sometimes with that wind coming off like like Lake Michigan so you have to take that into account like I have to get dressed I have to walk in the wind or I have to drive and then walk in the wind um I have to you know I might you know I have to grab breakfast or I have to miss breakfast all right here's my class now what are the marginal benefits my additional benefits well if I go to class I might learn something professor she might give us something that is points in class and I don't want to miss out on points it'll might help me do better on the quiz um and maybe I get to see my friends all right and then you weigh that and you say hey I'm going to go to class or not I go to class if the benefit of going no aways the cost then you're gonna go if the cost that way the benefits you're not going to go you know sometimes you might wake up and you're like really sick and you're like oh my God going to class you know I feel horrible I you know if I sit there I'm just you know I'm worried enough like throw up well then the costs are higher and the benefits and you don't go to class and that's the right decision but what you don't look at are the Sun so the sun costs would be here like your tuition money your tuition you paid to come to Carthage is already done right you've already paid that so that's not a reason to go to class that's that's that's that's like that's already like put aside um you know anything either book well if you already paid for the textbook that's not a reason to come to class you would look only at your additional cost your additional benefits to decide whether or not you need to come now we make decisions constantly and we're comparing marginal costs of marginal benefits and what happens is that and then we decide if the benefits are bigger than the cost we come if the costs are bigger than benefits we don't come or we don't make that decision when you decide to come to college you know if you decided to go to college what's you know your marginal costs marginal benefits um and you know and what what are things you looked at and you know the costs could be costs of um your opportunity costs so your opportunity costs this little button is so annoying it like distracts me opportunity the opportunity costs that's the next best alternative so if you came decided to go to college well what were some you know your your other costs could be you know you could have gotten a job they paid a lot of money or paid Thirty forty thousand dollars a year that you're not getting um you know you could have traveled the world that would be an opportunity cost there's all these things but when you do when you wage your costs and your benefits you decided hey I think it's worth it for me to go to college now when people get up on sun costs this is when they get like hung up on what has happened in the past and you I promise you in your lifetime this will happen to you more than you would think this just happened to me with my friend this week and I was like this will be perfect because it'll be a story for my class I love telling stories all my friends see this is why it's a good thing you don't know my friends because I do tell a lot of Stories on them but um my friend is um actually let's tell a story on my daughter instead my daughter who also I told her I'm like this makes it human said it so my daughter's in college she decided last Thanksgiving that a year ago Thanksgiving that um when you know she went off to college she's like listen mom there's a she goes to a Big Ten school there's a big football game right after Thanksgiving that Saturday and it's a home game and you know I'm gonna be so busy with my friends so I want to come home for Thanksgiving but I only want to come home for one day and she goes to school in Minnesota so it's pretty far so she was like so this is in the summer right when she's going back so she's like so could we buy a ticket for me to fly home on Thursday morning which is Thanksgiving and I will fly back to Minneapolis Friday morning so I'll only be home like 24 hours you know I'm like okay how pretty my kids are independent I was like you know what am I gonna do as a mom I was like fine you know I'm glad you're gonna be coming home I respect the fact that you know you've only got a certain amount of time to be in college and you want to enjoy going to the football game so I will buy you this ticket it's very expensive so we spent probably almost it was like 480 on this ticket because she's only you know it's only it's on Thanksgiving and then she's only coming home for that day so Thanksgiving rolls around and in my family uh usually everyone comes to um to the church I live in um the Chicago area everyone comes here I have four siblings and they're kids and so it's a big family my dad and we all come here it's the one holiday we all celebrate together so her cousins everyone starts coming in the Saturday before Thanksgiving and her cousins are here and her my other daughter's here and everyone's having fun and on Sunday before Thanksgiving and Sunday night my daughter calls me a mom you know I was thinking about it and I was looking at airfare and I could and she's like could I come home tomorrow instead of Thursday and I and she's like I know you spent you know 489 on that ticket for me she's like but that's a sunk cost she's like so we shouldn't take that into account yes I talk economics to my kids it is very sad it's hard being a kid of an economics professor but she's like so it's a sun cost she's like and I found a ticket that cost 300 and I would leave I would get home tomorrow which is Monday and then I could stay till um Friday night she's like and then I could have more time and I could see everyone she's like so the marginal cost of this is 300 but the marginal benefit is I could see everyone and I get to see you Mom and Dad and I get to spend time with you guys and she's like because we shouldn't look at the 490 we already spent because that's a sun cost and you know what I said I said you're right because she is right she's right that 490 is done I'm never getting it back so whether or not deciding to buy a ticket to go again I mean for her to come home the only thing I need to should look at really the only thing I should look at is the 300 additional dollars versus is that worth three hundred dollars for me to have my daughter home all week and I said it is worth it for me to have you home all week to pay 300 buy the ticket and she came home the next day a lot of people would be and and I see would be hung up saying well I'm losing that 480 dollars but the truth is it's a sunk cost you already lost it so you need so to make good decisions and this is really difficult you have to it's like don't think it doesn't matter that's already done you need to move on and make a decision with your marginal cost and your marginal benefits and weigh those to make the decision um I found this with people I know the go-to um so in my and I have two jobs my other job I go to a lot of events usually and so we go to an event and you buy tickets so I I've had many friend calling and they bought a ticket to some you know event and it was like a charity event and it might have been like a hundred dollars and they're like you know this is you know one of my friends many of my friends have called me like oh I'm so tired you know I've had such a long day I have such a bad headache I you know I have so much work to do tomorrow and I don't want to go to this dinner but I I don't want to lose that hundred dollars so I have to go and then what I say I say hold on I say let's do the economic reasoning what is the marginal cost of you going and they'll be like well it's the hundred dollars I'm like no no no no you already spent that hundred dollars it's gone no matter what it's a sunk cost so let's look at to make a good economic decision let's look at your future costs and benefits I'm like so what's your marginal cost and they're like well then I'll have to go and I'll sit there and I'll be tired and I you know I'll have to make small talk and I just don't want to go and I'll be like well what's your benefit of going your marginal benefit and they'll say well I'll get a dinner but I don't want that dinner because trust me they have the same kind of food at all these dinners and they're like well if I just look at the marginal cost of marginal benefit then I'm not then I shouldn't go and I was like exactly exactly don't go because you're not losing that ticket price that ticket price is already gone right that's already done you have to look at your future costs and future benefits to make a decision and that and that's what you should do um you know this this even comes from relationships I've had friends that are like you know I can't break up because you know we've had 10 years together and I don't want to lose that 10 years we've spent together and then I'll say you know look at this as an economist right when you think about the future of being with this person what are the benefits of staying with them and then they'll go and they'll be like okay so what are the costs of staying with them well I gotta listen to them they spend money or so if we look at our future cross and our future benefits should you stay together or not and every time people say well that's I never and you know sometimes people sometimes people I don't break up mirror like people sometimes people do stay together but sometimes people don't stay together but depending on what you do it's really looking in the future because remember what's happened in the past is done the so if learning this I have explained this to so many of my friends because it's come up and every time they're like well this makes everything make a lot more sense and then you make better decisions I'm like yeah but sometimes even I find myself you know getting stuck into well I already spent all that money this is why people lose money on stocks is that in family this is why people um lose money on stocks is that they get stuck they say you know I bought this stock for ten thousand dollars and now it's one thousand dollars I can't sell the stock because I'll lose nine thousand dollars this is the biggest mistake people make with stocks and this is how people make make mistakes in the stock market and the truth is what would you tell them as an economist what should you look on whether why you should save keep a stock or not what's the marginal benefit and the marginal cost of keeping that stock do you think that stock and that company is going to do well in the future or not do well in the future because what about the nine thousand dollars you already lost it and most people will be like this company is doing worse and worse and worse and I think they might go bankrupt and I'll lose it all but I don't want to sell it because I will lose the money you already lost the money so sell it at a thousand dollars while you still can make a thousand dollars before it goes bankrupt and you get nothing I can't tell you how many people I know that have held onto stock until companies have gone bankrupt and they've lost all the money because they kept saying I can't I don't want to lose all the money I already put into it guess what you already did this also happens with companies you get a new software system for your company you spend two million dollars on it it does not work well and people are like well we have to stay with it because we spent two million dollars so even though this software keeps making us get hacked and even though people won't use it right and it's decreasing productivity because trust me there's some bad software upgrades I don't know if you guys have had the upgrade downgrade we're like oh we've got this new little software thing and you're like this is not working and people make and they're stuck in their head so like but we spent two million dollars on this we can't lose it what do you say as a manager or to make this as you say what is the marginal cost the marginal benefit of this software going forward what is the cost of it well no one's using it and we're constantly being hacked what's the benefit well we have it and then it's like oh maybe we need to get new software yes you do so if you couldn't learn this thing about sunk costs and marginal costs and marginal benefits it is honestly life-changing so all of you at some point when you're making a decision and you're like why when you hear yourself in your head well I already spent all that I don't want to lose that money I spent hear me in your head going wait a minute maybe this is one of those sung cause things so that just tell yourself that class that's already gone we need to look at the future costs future benefits and sometimes it's hard this really happens in companies imagine you spent two million dollars on new software that doesn't work or four million dollars on new equipment that just literally doesn't work right and it's making you less productive sometimes you have to say it's a sun cost we need to be profitable in the future and we just have to take it as a loss and move on all right and move on that's how you make good decisions in it all right so anyway I know I get carried away by the sun cost thing is just super important I think I use it like at least once a week and if your parents get it you can use it on them to get you to buy tickets to come home for Thanksgiving but I wasn't even mad because she was she was sungross so let's go back to our uh all right well I think we're almost done because that was one of the biggest things okay it's a slideshow from slide all right so again if the marginal or future benefits exceed the marginal or future costs you should do it and if they don't you don't do it so the marginal benefits so if you need to pause this I'm going to go to the next slide as I said I already talked a little bit opportunity cost it's the next best alternative there's always a cost the thing to remember two is there's a cost to every decision you make there's no magic thing that you can decide that there's not a cost opportunity cost is what you could there's always something else you could have done and you were sacrificing that so that is a cost if you go to college you could have got another job when I took this job uh teaching I could have gotten a job I also have a lot of grades a lawyer and made more made more money but I would have had to work more hours you know I'm balancing that there's always things um the opportunity cost of having kids [Music] um I'll tell you so the first time I thought about this it was years ago we haven't we were talking about opportunity costs and I was like yeah it's just like having kids there's a lot of opportunity costs so I had children um so I went so you guys will get to know my little stories I tell a lot of stories um when I was um young so I went to law school I had got a degree in economics in my undergrad and went to law school honestly economics best degree for law school truly law is all about economics um went to law school and then um was and then I got I actually got married when I was uh actually before when I was 23 which at the time did not seem that old I mean that seemed that young but now I'm like man that was really young it's worked out great my husband I got two kids it's all great because I went to law school and then I graduated and I was you know my 20s and at the time and I it's maybe a little less of this now um law firms during the interview said if you had they told me straight out you can't have kids at least 10 years and if you do we'll fire you um for the it was it was very annoying because for the men they said do you have kids because it's better to have kids and a wife because that way it's good for the firm and you know the wives do a lot which also is not good for people that don't want a wife and might you know the same sex couple it was a very tough time for women for for a lot of people all right but the default was if you're a woman they said you can't have kids because you have to be available 24 7 to our uh to our um clients so my husband and I had a long talk and I was like you know what I I wouldn't have kids we'd already been married three years and I was like you know what and this really bothered me and it was really actually a hard moment in my life to see the guys go off and you know be able to have kids we're encouraged to have kids and and get married where us we were told you know and so I had my daughter instead and then I had my other daughter um and so I uh you know I was thinking about this so I was talking about opportunity costs and I'm like well gee you know I when I was graduating from from law school the average person would make the average attorney salary was about 160 000 a year and this was a long time ago so I gave up that was the opportunity one of the opportunity costs of having children was I gave up I didn't at work for eight years when my kids were little I couldn't afford child care and then I went back to school and I been a teacher I've made probably I make about 10 what I would make as a lawyer right now maybe less than 10 so I started adding it up in front of my class and I'm like well you know it's probably like 200 000 a year go over you know my daughter's 23rd well the time like 20 and then it was like suddenly I'm like I think it was like four million dollars all right like my opportunity cost right there of having kids are my kids worth four million dollars yes they are but it is a real cost is opportunity cost so whenever you're making life decisions or any decision it's good to think about and obviously I am glad I had kids that was the right decision for me but it's it's important as economists we know that there is a cost you know there's always something you could have done instead and it's important to remember that so that you can make good decisions about what you should do um and I decided that having all that big salary and I really did I remember if I mean because I knew I was giving up a lot um although when I added up you're like oh that is a lot but um you know you know four million dollars is quite a bit of money but at the same time the life I have with my kids to me the marginal benefits outweigh the marginal costs and and overweight the opportunity class for real it did but it's good to be thoughtful you know should I move to another city is that something you might happen to you when you graduate from college and you have to weigh that well if I move what am I giving up I might be giving up my seeing my friends my family but I might but but the benefits would be I have um you know this great new career with and and we have FaceTime now so I can still talk to them and things but you but it's it's just good to be thoughtful about your decisions so we already talked about this you know individuals you know what you could have done what you could have done with the money and then and I think the government thing is important too is that there's always a cost you know it's easy to say well the government should just give everybody free everything but there's a cost to that that means that they can't like if we give everyone free college tuition and people College tuition needs to be way less money than it is now because thank you for going to college because our entire economy is better off the more educated we are so you are helping the US economy and so we should help you with tuition I when I'm firmly believing we should definitely help people with college but should we make it free well there's no free I think that's one thing we'll learn in this class too no I'm gonna write that no free there's nothing is free there's always opportunity costs and there's always a cost so if we think college free that means that people are going to pay more in taxes or we'll have to spend less on things like the defense or on roads or things there's always opportunity costs there's always something that you have to give up which kind of brings me to one of my favorite things that you should know is tan stenophel and my kids live by this too is there's no such thing there ain't no such thing as a free lunch it's hard for me to say ain't but there ain't no such thing as a free lunch the truth is nothing is free and it's important because a lot of people will say why can't gasoline be free why can't I remember my kids when they were little and this is when it's hard when your mom's an economic professor I distinctly remember having this whole conversation with them about cookies and they were like we were at this door they were like six years old right six and eight they were like Mom why can't cookies be free and I was like well because I said Well it can't be free because why would the baker bake cookies for you if the baker couldn't charge money for them then how would the baker buy the flour and the chocolate chips and the icing I said so there's there's it just can't be free they're like but we want free cookies and I'm like well there's nothing that is free because there's always a cost and then I like made them very sad and then they realized that nothing was free because there was always a class so it's very it's important to realize that because a lot of people think well why can't we just make this free well nothing is free there's the free lunch thing comes from doctors offices where they get free lunches I have friends that work at doctor's offices who gets free lunches well pharmaceutical companies or drug companies legal drug companies usually we'll buy cater beautiful lunches at doctor's offices and then they'll get to get this lovely lunch and is it free well no because what do they want from the doctors they want them to prescribe their medicines because they make so much money off their prescriptions so in exchange for this free lunch you get to listen to their Spiel on the latest drugs that you might prescribe and it studies show doctors do prescribe those drugs more it's not free I remember my kids my daughter once was at Six Flags and she called me on her little flip phone because you know she was before there were smartphones and she was like Mom fell for the free thing and she I remember she was so upset she's like I know nothing's free but there was a thing that said get a free ringtone there was a sign that said if you get a free ringtone for your phone if you text like Snickers or something to this number so she texted it and she got and then she realized she's like they started sending me ads and like all these marketing stuff because was it for she's like the ringtone wasn't free they just wanted my number and I was like yeah it's good to know so it's good for you to always be thoughtful as an economist and be like why am I getting this free you know people will send me free textbooks are those really you know companies well are those really free you know it's because they want me to use their textbook because they'll make a ton of money off of it right so but it doesn't make it wrong no as long as both parties understand what's going on it isn't because I do need to look at textbooks so it actually works out it can work out but I have to be thoughtful of it's not free and and to be helpful you know even is Love free I don't know do I expect something from my kids do I just love them no matter what or do I kind of want them to maybe come home and hang out with me and maybe just a little bit ah I would are you I don't know is it free are relationships free would you be you know did you expect anything in return I would say yes you do expect things to return so it's just important for us to remember there's nothing that's free and it's what's really important for you to remember in your life lesson one is you gotta remember the sun cost thing because truly it is revolutionary and number two is whenever you someone tells you something is free you need to turn on your alert turn on your brain and go okay what's the catch because unfortunately or fortunately there is always a catch and it might be okay still for you to do but you need to be thoughtful of what that catch is all right um the rest of the market this invisible hand thing about shortage and stuff we're going to talk about in the next chapter so I'm not going to talk about here we already talked about this about how economics is about politics it's about social things it's about I mean it's about religion it's about we take so much of what we believe and put it into economics and that's why um we look at you know we look at and actually this brings me the next slide um you guys can you can read this if you need to pause it I'm moving on it's these models we look at models we look at principles and it brings us to okay this part I'm not going to talk about the price because we're going to talk about this next chapter but this positive economics normative economic part of Economics is that as economists here's our job we take positive academics now also side note there are many terms and economics that I did not name and I really it bothers me that they're named this because they're very misleading positive economics is an example positive economics does not mean it's a good thing it actually means the opposite it means it's neutral so positive economics again I did not name this means it's just how the economy works prices go up people will buy less all right there's no there's no anything in there normative economics is the word should so this is where you could say we should make uh gasoline more affordable so that people can more people can afford to buy it we should we should make soft drinks more expensive because they're unhealthy and so we should raise the market price so normative economics is the we're really government policies or our policies things that we think should happen and positive economics is just how prices work or how the GDP Works how they kind of works the art of Economics is when you take economic models and then you put in your normative of what you think should happen and then you put them together to make it happen so you could say you know what we should protect our steel industry in the U.S so then we take tariffs which tariffs are positive economics a tariff is attacks they're never stood there so you take it you say Okay so we're going to take so the art of Economics would be to take tariffs and put a huge tariff on steel that comes into the to the US and then that will help the steel industry in the U.S grow that's the art of Economics so the art of Economics is what we do as a common sense we take economic principles and then we put them together with what we think should happen and then we find an economic solution to it and that's the beauty of the art of economics all right so that's the end of chapter one here but it's important it shows why economics is so important and it's just really important to life to understand economics how it works and so that you can make good decisions for you in your entire life honestly this class can be life-changing in a good way because it just allows you to be thoughtful and make really good decisions we'll talk about all right so I'm going to hang them there and I will see you next time have an excellent day foreign