Core Principles of Economics Lecture Notes

Introduction to Economics

• Definition of Economics:
  • The study of how people use limited resources to achieve unlimited desires.
  • Economics involves making choices because resources (time, money, abilities) are limited.
• Economics and Daily Decisions:
  • Economics is not just about money; it encompasses everyday choices:
    • What to eat, how to spend time, whom to spend time with.

Economic Questions and Decisions

• Economics research can address a wide range of questions:
  • Preventing recessions, deciding major, choosing restaurants, preventing discrimination, etc.
• Decisions in life often have economic implications and are influenced by various factors.

Decision Making in Economics

• Major Decisions:
  • Factors influencing choice of major: interest, class difficulty, post-graduation earnings, personal enjoyment.
  • Decisions are individualized and based on personal priorities.
• Four Core Principles of Good Decision Making:
  • We will explore these principles, important for understanding economic decisions.

Cost-Benefit Principle

• Definition:
  • Evaluate the full set of benefits and costs for any choice.
  • Pursue a choice if the benefits are at least as large as the costs.
• Example: Buying Coffee:
  • Cost: Monetary cost of coffee ($3).
  • Benefits: Enjoyment, caffeine alertness, social interaction.
  • Willingness to Pay:
    • This quantifies benefits, reflecting what you are willing to spend for satisfaction.

Misconceptions about Cost-Benefit Principle

• Selfishness:
  • The principle doesn't imply selfish behavior as individuals consider others’ benefits too.
• Mistakes:
  • People can make mistakes yet still follow the cost-benefit principle.
  • Economics explores why seemingly irrational decisions (e.g., smoking) occur.

Charity and Cost-Benefit

• Why Give to Charity?:
  • Enjoyment from generosity, feeling good (Warm Glow), belief in making a difference.
  • Reflects benefits beyond personal gain.

Application: College Decisions

• Cost-Benefit of College:
  • Benefits must outweigh financial and time costs.
  • Why choose a particular college (e.g., MSU) over others?

Conclusion

• Next Steps:
  • Further exploration of why a particular college choice (MSU) should be beneficial.
• First class recap:
  • Understanding economics as part of daily life and decision-making processes.
  • Preparing for further study of core economic principles.