Chapter 1 Lecture
Thursday, January 16, 2014
- Macro studies market forces beyond control of any one person or firm
○ You make Micro decisions:
Type of job
Accept or reject an offer?
○ But Macro factors are key
Lots of offers or only a few?
Is pay high or low?
- Key problems to discuss in macroeconomics
○ Who's rich and poor?
○ How many are hungry and homeless?
○ Are there enough resources in the world?
○ How much does it cost to live?
- What is Economics?
○ Primarily about dealing with one problem
- 1st Key Idea
○ Society has scarce resources
The management of society'sresources is important because resources are scarce
Scarcity means that society has limited resources and thereforecannot produce all
the goods and servicespeople wish to have
Economicsis the study of how societymanages its scarce resources
○ Understand what choices societies have made ad ramification of those choices
○ Understand the current tradeoffs societyis making
○ What are important
- 5 Key Ideas
Money is important
Money is magical
Money is a signal of quality
Money is a measuring stick
○ NOT a zero-sum game
- Key Idea: Incentives
○ Anything that cause people to change their actions
○ Two types of incentives: Positiveand Negative
Grades, pay and traffic circles in India
Right incentives improveeconomicconditions
Wrong incentives can destroy a country
○ Reduce gasoline usage
Mexico City wanted to reduce number of cars
□ Set days for each license plates for driving to reduce traffic
□ Negative incentive; takes car away
□ People buy multiple cheap cars instead of expensive eco friendly cars
- Key Idea: Money is Important - Key Idea: Money is Important
○ Money is a big incentive and incentives matter
○ Expression: "Money is root of all evil"
- Key Idea: Money is Important II
○ Money is magical
It allows societiesto produce far more by eliminating barter
Must have a double coincidence