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					Economics 1000
Overview

   C. L. Mattoli
           Information Information
   Lecturer: Craig Mattoli
   Email: clm@clmattioli.com
   Phone (text messages only) 136 3241 0877; include
    your name and course in message.
   Office hours: by appointment. Temporarily located in
    room 221.
   Don’t be shy. Ask Questions of your Instructor, not
    your classmates. No one cares as much as he
    does!
   Sometimes, I talk fast, use words that you might not
    know, and write abbreviations on the board. Again,
    if you don’t understand my written or spoken word,
    ask. It’s ok!
Introduction to the coursework
What is economics?

   Economics is the study of choice in the
    allocation of scarce resources.
   It is divided into macroeconomics, the big
    picture, and microeconomics, the small
    picture, which all mixes together to make the
    big picture.
   The analysis in this course will be
    mathematical and logical/verbal.
Logical argument
   Much of the assessment in this course will be verbal
    backed up by mathematical.
   In argument, you start out with a question and perhaps
    some details to define the situation.
   For example, there is a dead dog. The question is why or
    how did he die?
   In order to answer that question, you might want to know
    where he was found and if there are any injuries on him
    before you begin to try to figure out how he died.
   Thus, there is a certain procedure to answering questions
    in a logical manner, which begins with asking yourself
    questions, gathering all of the data that you have to begin
    with, organizing the data, and then proceeding to try to
    answer as much of the question that you can with the
    information that you have.
The Scientific Method of analysis
   Economics uses the scientific method.
   The scientific method involves: 1) observing a
    system, 2) postulating a theory to explain the
    workings of the system, 3) collecting appropriate
    data, and 4) testing the theory against the data to
    see how well data fits theory, then, 5) going back
    to see how the theory might be revised to better fit
    observation.
   In economics it becomes: 1) identify a problem,
    2) make a simplified model, and 3) test it.
Mathematical methods
    Mathematical methods will include arithmetic,
     algebra and graphical analysis.
    Equations, relate one variable, called the
     dependent variable, plotted on the vertical axis in a
     graph, to other variables, the independent
     variables. For example, S = supply = AxP = A x
     Price, relates the supply of something to the price.
1.   We say that it is a positive relationship because S
     increases with increasing P, i.e., supply will
     increase with increasing price. That is how we
     describe the information in an equation, in words.
2.   To graph the equation, we need sets of values for
     the two variables, like (S,P) = (0.5,1), (1,2),(2,4),
     and (3,6). We show how to do that in the next
     slide.
Graphing pairs of numbers
   Given the information for supply, S, and price, P,
    from the preceding page, (S,P) = (0.5,1), (1,2),(2,4),
    and (3,6). we graph them as follows:

     S

      3


      2


      1

     0.5

          0
              1     2      3   4     5     6      P
  Rate of change: variation of one variable
  with another
     We will also look at changes in one variable due to changes in another. This is known as
      rate of change, or variation.
     For a straight line graph, this change is the slope of the line, given by slope = rise/run =
      (S2 – S1)/(P2 – P1) = ΔS/ΔP, where Δ is a shorthand notation for change.
     For the example from the previous page


                      S
ΔS/ΔP=
(2 – 1)/(4 – 2)        3
= 1/2

                       2


                       1

                      0.5

                           0         1         2          3       4        5         6               P
Other types of change
   The slope can also be found in the equation of the line.
    The general equation of a line is S = aP + b where a and b
    are constants.
   Then, applying our definition of slope to the equation
    without even using numbers, we have slope = rise/run =
    ΔS/ΔP = (S2 – S1)/(P2 – P1) = (aP2 + b – (aP1 + b))/(P2 –
    P1) = a(P2 – P1)/(P2 – P1) = a.
   As an exercise pick numbers for a and b, draw the graph
    and see for yourself. It will turn out that b is where the
    line intersects the S-axis.
   Another type of change that we look at in economics is
    percentage change. That is simply given by: Percentage
    change of S = ΔS/S1= (S2 – S1)/S1
   Percentage change will be involved in the definition of
    the economic concept of elasticity.
Required in the course
   Take data from tables and turn it into graphs.
   Identify and interpret patterns in economic
    data in graphs and tables.
   Explain and use key economic concepts
   Explain and apply theory of competitive
    markets
   Discuss selected instruments of economic
    policy.
   Discuss and apply economic theories and
    indicators.
   Discuss problems faced by real-world
    economic managers.
Tests and assignment
   Each week there will be problem sets that you will be
    required to hand in. Then, we will go over problems in
    the tutorial.
   Workshops will go over concepts and you will do in-class
    problems to practice.
   There will be an on-line mid-term exam with multiple
    choice on April 27.
   On May 18, an extended-answer assignment is due,
    answering 3 questions, using logic, economics, and
    mathematical methods. See: Intro book
   The final exam will contain multiple choice, short answer
    and long answer problems.
The course in overview
Introduction to Economics
   We start out talking about the basics of what
    economics seeks to do and to describe.
   Economics analyzes the allocation of the resources
    of a society or nation.
   A nation has limited labor, production facilities, and
    technology to produce things for it’s members.
   Thus, choices must be made about the mix of
    products that will be produced.
   There will be opportunity costs from choosing one
    over another.
   In the end, we will find the production possibilities of
    the economy.
Models and analysis
   We will look at construction of simple models
    of economic variables in terms of other
    variables.
   We will look at equations, graphical and
    tabular analysis of data to examine economic
    relationships.
   This will require logic, thinking and verbal
    analysis of problems, which will be important
    for your work in this course.
Supply, demand, and international trading
   We will learn about the basic concepts of
    supply and demand, and how prices and
    other market and non-market forces will help
    determine some of the allocation problem.
   International trade will also come into the
    picture, early, because, some things that a
    nation cannot or will not produce itself can be
    gotten from other nations. Some nations will
    find it to their advantage to produce more of a
    good or service than they need and will sell it
    to other nations.
   We will discuss the concepts of comparative
    and absolute advantage.
Costs, Profits and Production
   Supply will depend on price, and there will be price
    elasticity of both supply and demand.
   In the end, prices will affect profits of the producers.
   On the microeconomic level a firm that produces
    goods and services will have to worry about prices,
    costs, and profits.
   Opportunity costs will enter into the discussion even
    for a single firm because it must decide how best to
    use its resources.
   Then, there will be real costs, which will be
    subtracted from revenues (units sold x price) to get
    profits.
   We will look at fixed and variable costs in the short-
    run and the long-run. What will be important will be
    marginal analysis
Competition
   In reality, there are different types of market
    structures.
   In a monopoly, there is only one supplier, and
    he can set his own price.
   In oligopolies, there are only a few suppliers,
    and not much competition.
   In this course, we shall only study the case of
    perfectly competitive markets in which no firm
    can be a price setter. Price will be
    determined in the market.
The Macroeconomic view
   We look at the broad measures of the
    economy of nations, like national production.
   We will look at other gross variables, like
    consumption, savings, investment, and net
    exports.
   Then, we look at economic growth, inflation,
    and unemployment, and how things change
    over the business cycle.
   We examine goals of macroeconomic policy.
Macro modeling
   We shall look at classical approach and
    Keynesian macroeconomic theory.
   We will study aggregate supply, demand and
    macroeconomic equilibrium.
   Then, we look at what leads to shifts,
    including the affects of changes in other
    variables.
The monetary and financial system
   As we move towards the close of the course,
    we look at the underlying system of an
    economy, the monetary and financial system.
   Money is important to the modern economic
    system. It facilitates buying and selling of
    goods, services, and businesses.
   Money is a means of putting a number to the
    value of things.
   Since money is just paper, it is important to
    keep track of how much money is printed up.
Money supply and demand
   People and businesses need money for their
    transactions, and they might keep extra money for
    other reasons. Thus, there is a basic demand side
    for paper money.
   Money supply is defined by a number of different
    measures.
   Some people do not use all of their money for
    consumption and have some extra around. Some
    people want to spend more than they earn. Thus,
    there will be a market for money.
   Interest rates are the “prices” money determined by
    supply and demand for the extra money that savers
    keep and over spenders need.
Monetary Policy
   Since nations print money, they have to
    manage the supply.
   However, the supply will affect interest rates
    and interest rates will affect the state of the
    economy.
   In addition, the supply of money will affect
    general prices and inflation, and thus, again,
    the overall economy.
The Money System
   The Reserve Bank of Australia (RBA) issues money:
    it is a liability of the bank, much like paper issued by
    corporations, bonds, but it is backed by the
    government.
   Under the umbrella of the RBA is the banking
    system. Banks hold a special position in the
    financial system.
   Banks maintain Exchange Settlement Accounts
    (ESA’s) at the RBA through which most of the
    money in the financial system flows to settle
    transactions among participants in the economy.
   Banks can create money.
   The RBA also uses the banking system to manage
    money supply.
Financial Markets
   The other part of the system is financial
    intermediation and financial markets.
   These are places that money is allocated
    over time with the inclusion of the concept of
    risk.
   Financial markets include stock & bond
    markets, the markets for foreign exchange,
    the futures markets, and options markets.
Monetary Policy
   Since governments print money, they have to have
    some sort of policy about managing the supply of
    money that they print.
   Both price inflation of goods and services and
    interest rates are affected by the supply of money.
    Inflation is also part of interest rates.
   Demand for money affects interest rate rates, and
    loans can create money supply.
   The way governments have executed monetary
    policy has changed dramatically over the past
    several decades.
   The basic goals of monetary policy are a stable
    financial system, underlying a stable economy with
    reasonable price inflation.
Fiscal Policy
   Fiscal policy is the government's use of
    spending and taxes to affect the nation’s
    output, employment, and prices.
   Part of policy is to try to smooth out business
    cycles, the overall cycle of increasing and
    decreasing output, especially to counter
    recessions, the downturns in activity.
   Other issues might be to encourage savings.
   Problems can arise, however, from budget
    deficits,
Classes

   Lecture: Tuesday 4-6:00
   Workshop: Wednesday 4-5:00
   Tutorials: Monday 2-4; 7-9; Tuesday 8-10;
    10-12;
Choices

   Please at the end of class come up to sign up
    for a tutorial.
   Each one will be limited to a total of 25
    people, first come, first serve.
End

   There will be no workshop or tutorials this
    week.

				
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posted:6/4/2011
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