hi everybody so this is our virtual lecture for chapter one welcome to economics so this is the first of our virtual lectures um so we're gonna be covering chapter one and like most chapter ones this is a very introductory chapter where we're going to be covering mostly just like definitions and some key concepts that are going to be important moving forward in this course in this course um and it can be a little bit um it can be a little boring i guess to say not that economics gets super exciting i mean i get excited by him but um because chapter one is it's very definition heavy it's gonna be a lot of just like reading slides which isn't what i like to do i like to do more sketching and drawing the models and working through problems with you in these videos so just bear with me this one's going to be very much just dry here's some definitions about economics well lighting is just changing on me all of a sudden all right so let's get into it i'm gonna pull up my notes all right here we go so um chapter one welcome to economics if you're in the econ 100 class these video this video is going to share between both 201 and econ 100 so you see principles of microeconomics down here um that's just because this is this this lecture is pulling double duty so don't uh worry about that um okay you're in the right place this is what i'm trying to say uh all right so in this chapter we're gonna learn the following things we're gonna learn what is economics and why is it important we're gonna learn the difference between microeconomics and macroeconomics okay we're going to learn about how this course is going to be structured using economic theories and economic models to teach concepts and the last topic that we're going to be covered in this chapter is economic systems which is kind of the rules to the game that govern economies so let's get right into it like any chapter one we need to start with what is economics what is the definition of economics and i like to do this activity in a in a face-to-face class because i get a lot of different guesses from my students a lot of people guess things about it's the science to do with money or it has to do with the economy which i think is kind of cheating because you can't use economy to define economics um so what is it what is it what are you going to learn in this class so the first place we all go is wikipedia and the wikipedia definition is a social science concerned with the factors that determine the production distribution and consumption of goods and services so notice money is not in that definition even though that's a lot of what we think about when we think about economics economics is really about the goods and services what makes our life worth living the stuff we use the stuff we uh the stuff that we we need to survive and basically where it comes from like how it gets produced who gets it and how you use it and so that's the wikipedia definition and it's not a bad definition but it's not the one we're going to be using in this course the next definition is from the father of economics which is adam smith he was writing about economics during about the same time as the american revolution and he wrote that economics is inquiry into the nature and causes of the wealth of nations so what he meant by that is the study of economics is about studying why some areas in the world are wealthy and some are not um and so that is a lot of what macroeconomics is about and we'll certainly talk about that um in the in the macro portion if you're an econ 100 and if this if you're an econ 201 that's something you're going to talk about a lot when you take on 200 if you haven't taken it yet but again that's not quite what we're going to cover one of the most famous economists living right now he's the guy who was featured in the book and the podcast freakonomics steve levitt he said i think of economics as a world view not a set of topics okay so that's really like high and mighty thinking of him and this this idea that economics isn't about the actual producing of goods distribution of goods consuming of goods the way wikipedia thinks of it but instead economics is about some sort of mental space this idea of how do we view the world and i think with that we get a little closer to the definition we're going to be using in this course and so our textbook defines economics as simply the study of how humans make decisions in the face of scarcity okay so let's that let's unpack that a little bit in essence what our textbook is saying is economics is the study of choice so when you think about those things that wikipedia is talking about producing goods distributing goods and consuming goods at the end of the day that's all about choices that people make what goods should be produced what goods are we going to produce as a society what goods are we going to produce as a firm as a business or even as a home entity when you're deciding what you're going to make for yourself what it's all about choosing and about trade-offs and whether whether we should produce this or that distribution that means who's going to get it if you're going to produce a good if you're going to produce something like healthcare who gets healthcare should it go to the highest bidder or should it be something that's universally available to everybody okay that's distribution and that's a choice that's made by society right consumption as a consumer as a as a household what am i going to do with my hard-earned money am i going to purchase uh an iphone or a galaxy am i going to get tickets to disneyland or am i going to save that money because i'm going to be going to movies every week this month i don't know what i'm trying to say here but the idea is that that is a big part of economics this idea of how do households make choices so the end of day it's all about choices okay and so let's talk about that second half of the sentence the face of scarcity what does that mean so scarcity is the idea that humans wants for goods and services and resource says exceed what is available everything is scarce humans have in general unlimited wants okay but your what's available is always limited so time money labor land natural resources raw material everything is scarce okay without scarcity there is no need for economics and so you might think well scarcity doesn't exist for like rich people right when bill gates is deciding when to have the lunch he doesn't have to worry about how much it cost but he still has to deal with scarcity he doesn't have unlimited time right and so if he wants that sandwich he had at this cafe in amsterdam once and that's what he wants for lunch he may not have time to fly to amsterdam to get it right he has a limited space in his stomach his stomach space is scarce so we can only have certain things for lunch so everybody always is dealing with scarcity and that is why economics exists economics exists because you have some limitation on what you can choose and so economics is the science about deciding why and how people choose what they do and when we decide understand how and why people choose what they do economics is all about one understanding those choices so that way you can develop policies to help those choices right if you think not enough people are going to college you need to understand why people are making the choice not to go to college is it a cost thing then maybe that the the that the intervention is to make college cheaper is it a not understanding the benefits thing then maybe the intervention is more outreach and explain to kids when they're in high school the benefits of college education so that is why economics exists to understand why people make choices so then we can think about those choices and affect policy in a way to improve choices okay so without scarcity if scarcity didn't exist there would be no need for economics like let's say you're deciding whether you're going to buy an iphone or a galaxy well if you didn't have scarce money if you didn't have scarce pocket space if you didn't have scarce um time to learn how to use both phones then the answer is obvious you get them both right if you're a a restaurant owner and you're deciding how many workers you want to hire in your restaurant well if you're not dealing with the scarcity of trying to make a profit and you're having to pay your workers so you don't have unlimited money you don't eliminate space in your restaurant right and so you can't physically hire a thousand people because they can't fit in the door and i then your choice would be easy how many people to hire all of them right you want to give people jobs should we build a park or a school or a library on this public land let's build them all and a museum too right so that's what scarcity is all about and the reality of the world is since it scarcely exists humans need to make these kinds of decisions all the time and this is where economics comes in economics studies and attempts to explain these divisions these decisions okay so we're going to talk about the first um concept of economics and this is like a a historical critical concept of economics that was developed by adam smith in the 1700s and this is the idea of the division and specialization of labor so the father of economics wrote about the division of labor in the welfare nation 1776 and he basically said that production in an economy is broken into tasks with different individuals specializing in the execution of each task and that might seem obvious too right that we do typically in society um i am a professor of economics i just had surgery last week i noticed how well i'm recovering um i had my appendix taken out i didn't take out my own appendix there was a doctor who specializes in in in that sort of you know surgery around the abdomen area and taking out the in dealing with those sort of organs he specializes in that right i don't want to see a dentist to get my appendix out but when it's time for me to get a root canal i've actually never had root canal and i don't really know what that means but i hear they're painful but i don't want that same surgeon dealing with my roots now why because we our economy functions best when different individuals are specializat specializing in the execution of different tasks so advance our restaurant has a chef who conceives the dishes and oversees the kitchen other cooks whose job is to execute the dishes servers wait table staff clean the restaurant hosts welcome um the guests um and and but you rarely see a chef waiting tables or chef mopping the floor uh and the question is is is why i mean we all know this exists this isn't news to you um and and on a certain aside there's gonna be a lot of that in this class because you've lived in an economy your entire life and the world that functions around you as an economy there's a lot of stuff we'll learn in this class that seems obvious to you um and so the purpose of specialization division of labor is to increase production which is a way to combat combat scarcity scarcity is the our is our problem we're dealing with here and specialization and division of labor allows you to produce more stuff to trust more bigger better stuff and so specialization helps combat scarcity okay so it may seem intuitive that division specialization increased the production but why so adam smith offered three options one would individuals have individuals naturally have different talents interests and skills some people are better than at some things than others i think i am pretty good at this teaching economic stuff you know you might disagree by the end of the semester um and i don't want to do sound braggy but like i really think i'm good at it there are a lot of jobs out there that i don't think i'd be good at so i feel like i'm leveraging my personal talent you know i am a pretty good communicator i have these analytics skills that is good for economics um and allows me to focus on my strengths and when people focus on their strengths they are more productive than when you're forced to for to focus on your weaknesses so you know i'm so my one of my weaknesses might be uh um i hear i'm in trouble with the weakness but like i was not as good of a student in in sort of the liberal arts things like uh uh english or sociology or things like that like that's not something i'd be good at teaching i'm not as passionate about it and so i think i produce more and i do a better job because i'm focusing on something i'm interested in okay um you know my wife is a very hard-working talented um and she's upper management at her organization but she'd be really bad in a manual labor uh world so if she was forced to to become a dry waller for example um houses would be built slower but she's focusing on what she's really good at which is her management skills and she helps her organization run really smoothly notice i like called my wife out like i'd probably be terrible at drywalling too but i you know a little bit too high of an ego to admit how bad i'd be at drywalling anyway by focusing on individual attacks workers become more skilled that's the next thing is by by allowing yourself to end up in a specialized field people become better at it right if you're trying to do everything at once it is harder to do it whereas if you uh focus on a single thing you get really good and sometimes really good really fast and you become more innovative and that again makes more production and then lastly what we're going to call economies of scale and this is a little bit of a trickier concept but economies of scale which is something that's going to come up later in this course again is the idea that econo that uh it's an idea in economics it states when for many goods as you produce more stuff the average cost of producing goes down in other words it's more efficient to produce large quantities so when you add division of labor and you can start to produce more stuff because those first two things then those gains are amplified by economies of scale economies of scale is why walmart can charge a cheaper price or amazon can charge a cheaper price than a mon paw store offering the same thing because when you do things at a big scale you sort of leverage this idea that it's cheaper to produce so those are the three reasons adam smith outlined okay um so moving on why study economics what are we doing here the world's full of choices how are you going to use what resources you have in your life how are you going to maximize your personal happiness and if you're a business how are you going to maximize your profit economics doesn't answer those questions for you it doesn't sorry it is not a collection of facts it's a set of questions it lets illuminates why we think how we think about these things that can lead to better choices but doesn't necessarily tell you the answer to the choices so again it doesn't dictate the answers rather illuminates the choices so one of the most important things we're going to do in this class and that i want to think about more important than any of the models we're going to cover we're going to talk about supply and demand we're going to talk about consumer choice but more important that all of that to me is that you leave this class with this idea of how to think like an economist okay and so that's something we're going to talk about beginning next chapter thinking like an economist and what that means so here's a quote i have for you to finish this lecture by john maynard keynes who is probably the most famous economist of all time even more famous than adam smith um he said economics is a method rather than a doctrine an apparatus of the mind a technique which helps its profess possessor to draw correct conclusions and that more than anything is hope is what i hope we get out of this class it is learning how to use economics as a tool to help illuminate choices and to think about problems in a more rational and more economic way again to help its possessor draw correct conclusions and that happy looking fellow is john maynard keynes and with that i'm going to end this lecture um there's more chapter one to come but i just for the the purpose of making it easier to consume i'm going to do these in chunks okay so i will see you for chapter one part two stop recording