What Is Econ

ECONOMICS Principles & Policy

William J. Baumol & Alan S. Blinder

Economics: Principles & Policy 11e Baumol & Blinder © 2009 Cengage PowerPoint slides prepared by: Andreea Chiritescu Eastern Illinois University

Chapter 1

What is Economics?

Why does public discussion of economic policy so often show the abysmal ignorance of the participants? Why do I so often want to cry at what public figures, the press, and television commentators say about economic affairs? ROBERT M. SOLOW

Ideas for Beyond the Final Exam

1. How much does it really cost?

– Opportunity cost

• Value of next best alternative forgone

2. Attempts to repeal laws of supply & demand - Market strikes back

• Price ceilings • Price floors

3. Surprising principle: comparative advantage

• Law of comparative advantage

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Ideas for Beyond the Final Exam

4. Trade = win-win situation

– Voluntary trade – all parties gain

5. Importance of thinking at the margin

– Marginal costs – Marginal benefits

6. Externalities - shortcoming of market cured by market methods

– Externalities – social costs

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Ideas for Beyond the Final Exam

7. Trade-off between efficiency and equality 8. Government policies - limit economic fluctuations - but don’t always succeed

– Fiscal policy – Monetary policy

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Ideas for Beyond the Final Exam

9. Short-run trade-off between inflation & unemployment

– Low unemployment - high inflation – High unemployment – low inflation

10.Productivity growth is (almost) everything in long run

– Small increase in labor productivity – higher living standard – Slowdown in labor productivity – lower living standard

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Inside the Economist’s Tool Kit

• Economics - discipline

– Mathematical reasoning – Historical study – Statistics

• Abstraction

– Ignore many details – Focus: most important elements

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Map 1

Detailed Road Map of Los Angeles

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Map 2

Major Los Angeles Arteries and Freeways

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Inside the Economist’s Tool Kit

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