“IN ECONOMICS, HOPE AND FAITH COEXIST
WITH GREAT SCIENTIFIC PRETENSION AND
ALSO A DEEP DESIRE FOR RESPECTABILITY”
John Kenneth Galbraith (1908-2006)
Key Questions:


What is Economics?
Why study Economics?
The State of Economics Today



Centrality of economics in everyday life and in the media
First real economic theorists arguably appear in the 18th century as a branch of political philosophy known as
‘political economy’
A dismal science?
‘… the science which studies human behaviour as a relationship between ends and scarce means which
have alternative uses’
Lionel Robbins (1932) Essay on the Nature and Significance of Economic Science
‘Economics is, at root, the study of incentives, how people get what they want, or need, especially
when other people want or need the same thing.’
Steven D. Levitt, Stephen J. Dubner (2005) Freakonomics. A Rogue Economist Explores the Hidden Side
of Everything.









Economics examines fluid systems and can propose new constructs or how can be amended.
First truly modern economist was Adam Smith (1723-1790) a ‘Classical economist’.
Development of Capitalism and laissez-faire economics.
Mathematics, engineering, and science led to neo-classical economics
National characteristics of economics, growing differences in 20th century.
Alternative approaches: sociology, psychology, even a field of religionomics.
Preeminent model was the free-market economy as predicted by Adam Smith
Financial crises of early 21st c. indicate something wrong with system
What next? Post-capitalism.
Some Terminology




Oikos – household
Nomos – rule
Macroeconomics
Microeconomics
Economics 2: The Origins of Economics


Xenophon, Oeconomicus (c. 364 BC)
Aristotle (Theophrastus) on Economics (late 4th century BC)
Economy
Specialties
Additional Info
Royal economy
The simplest and most Coinage, imports, exports, expenditures
important. Consists of the
king
Up to the top management of the king to
decide value of coins struck, advantages of
the markets and other commodities
Satrapic* economy
The medium between the Six kinds of revenues: from land, from Government officials work with the Royal
economies. Involves the peculiar products, from merchandise, from officials
provincial governor
taxes, from cattle, from all other resources
Most important source of revenue: land,
then scarce resources, then merchandise
Political economy
Most varied and easiest: Truly the economy of the city
“The economy of the city” Economy at a smaller level
Sources of revenue involve merchandise,
scarce resources, and taxes
Personal economy
Least important, quite Least important because income and Revenue consists of land, property, and
varied. Practiced by the exchange of money are small
investments
individual
Very diverse opportunities that establish
the flow of money, no specific aim
*Satraps were Persian provincial governors.



Look at this table closely.
What ideas did Aristotle have about economics? Are any of these familiar? Unfamiliar?
Aristotle argued that property should be private, but the use of it common.
Property should be Private! Why?
My Notes
Pp. 12-15
WHY STUDY
ECONOMICS???
Is it really important …
Or is it just another REQUIRED high school credit?
DID YOU KNOW…
Economics is simply a social science that focuses on the choices people make.
Knowing about economics can help us understand WHY people make the choices they do
Why do some people choose not to go to college?
Why would someone buy a more expensive product when a lesser priced good is available?
Why would someone drive to Florida when they could fly?
Economic reasoning is everywhere, appropriate, and always useful
It can be used by any age group or culture, in any situation or context.
The insights it provides are powerful and can help you make sense of the confusing world around you.
Knowing about economics can help us unlock mysteries of
human behavior
Many mysteries can be solved by learning how to identify incentives.
We can answer questions like…
Why is Disney World cleaner than Yellowstone National Park?
Why is buying “real” Christmas trees (rather than artificial trees) better for the preservation of trees and forests?
Why do so many patriotic Americans not vote in Presidential elections?
Why is a legislated increase in minimum wage bad news for poor, low-skilled teenagers?
By understanding economics, we can dispel common myths and misconceptions.
Economics is all about institutions and mathematical models
Economics is all about money
Bad choices have costs but good choices do not
Sometimes people just have no choice
With economic knowledge, we can understand that things are the way they are for a reason.
Why is the demand for Nintendo Wii’s so great?
What is the price where the supply meets the demand?
Why do so many people dislike monopolies, but everyone seems to want to be one?
How can businesses stay in business when they don’t earn a profit?
Knowing about economics can help us understand society at many different levels and how it all connects.
Households
Businesses
Country
Globe
We can understand government better.
Why are taxes necessary?
How is the economy affected by the government?
How does the government arrive at its economic policies?
What types of economies do other countries have?
Why does the government sometimes regulate wages and prices?
Is government involvement a good thing?????
That’s right, understanding economics can help you understand your country!
Knowing economics can help us THINK responsibly about economic issues.
Do wealthy corporations help the economy or hurt the consumer?
What economic sectors are hurting and why? What sectors have great potential for growth?
Knowing economics helps us understand what they talk about on the evening news.
What is a ponzi scheme?????
How does the stock market work?
Why are so many homes being foreclosed?
Is there any end to this economic downturn?
Knowing about economics helps us appreciate the scarcity of resources.
There is a difference between needs and wants.
We have to make trade-offs.
What is the next-best alternative to what we give up???
Knowing about economic principles teaches us to be smart about our personal finances.
It has been said that “An investment in knowledge pays the best interest.”
“A penny saved is a penny earned.”
“In this world nothing can be said to be certain, except death and taxes.”
“Creditors have better memories than debtors.”
“If you know how to spend less than you get, you have the philosopher’s stone.”
~ Benjamin Franklin
Ever want to buy a car???
Should you get a job???
How much should you be saving for college???
Where should you invest your money???
It has also been said that “Economy is the method by which we prepare today to afford the improvements of
tomorrow”
~ Calvin Coolidge
In case the above statements are true, you’d better be on the safe side and …
…Know your ECONOMICS!!!
Seriously, when you study economics you begin to think differently! You begin to see patterns in how economic
cycles work…up and down, bull and bear, boom and bust, growth and recession, inflation and deflation, employment
and unemployment, expansion and contraction.
Understanding how economics works will help you survive the inevitable times of despair.
When you don’t get an expected raise at work.
When you have to make a tough decision about your money.
When jobs are scarce, inflation happens, or when businesses are failing.
That’s why taking this class is sooooo VERY important.
Like everything in life …
YOU will determine your own …
UNDERSTANDING!!!!!
So buckle down and study!
Make a commitment to this class.
Keep an open mind.
Try your best.
Ask questions.
THE END … FINALLY!!!!!!
Macroeconomics (from the Greek prefix makro- meaning "large" and economics) is a branch of economics dealing
with the performance, structure, behavior, and decision-making of an economy as a whole rather than individual
markets. This includes national, regional, and global economies. Macroeconomists study aggregated indicators such
as GDP, unemployment rates, national income, price indices, and the interrelations among the different sectors of
the economy to better understand how the whole economy functions. Macroeconomists develop models that
explain the relationship between such factors as national income, output, consumption, unemployment, inflation,
savings, investment, international trade and international finance. In contrast, microeconomics is primarily focused
on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and
quantities in specific markets.
While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the
discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the
business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national
income). Macroeconomic models and their forecasts are used by governments to assist in the development and
evaluation of economic policy.
Output and Income; Inflation; Unemployment
Microeconomics (from Greek prefix mikro- meaning "small") is a branch of economics that studies the behavior of
individuals and firms in making decisions regarding the allocation of limited resources.[1][2][3]
This is in contrast to macroeconomics, which involves "the sum total of economic activity, dealing with the
issues of growth, inflation, and unemployment and with national economic policies relating to these issues".[2]
Microeconomics also deals with the effects of national economic policies (such as changing taxation levels) on the
aforementioned aspects of the economy.[4] Particularly in the wake of the Lucas critique, much of modern
macroeconomic theory has been built upon 'microfoundations'—i.e. based upon basic assumptions about microlevel behavior.
One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods
and services and allocate limited resources among alternative uses. Microeconomics also analyzes market failure,
where markets fail to produce efficient results, and describes the theoretical conditions needed for perfect
competition.
Topics: 2.1 Demand, supply, and equilibrium; 2.2 Measurement of elasticities; 2.3 Consumer demand
theory; 2.4 Theory of production; 2.5 Costs of production; 2.6 Perfect competition; 2.7 Monopoly; 2.8
Oligopoly; 2.9 Market structure; 2.10 Game theory; 2.11 Labour economics; 2.12 Welfare economics; 2.13
Economics of information
Xenophon
The Oeconomicus (Greek: Οἰκονομικός) by Xenophon is a Socratic dialogue principally about household management
and agriculture. C. 362 BC
It is one of the earliest works on economics in its original sense of household management, and a significant
source for the social and intellectual history of Classical Athens. Beyond the emphasis on household economics, the
dialogue treats such topics as the qualities and relationships of men and women, rural vs. urban life, slavery, religion,
and education.
Joseph Epstein states that the Oeconomicus can actually be seen as a treatise on success in leading both an
army and a state.
Scholars lean towards a relatively late date in Xenophon's life for the composition of the Oeconomicus,
perhaps after 362 BC. Cicero translated the Oeconomicus into Latin, and the work gained popularity during the
Renaissance in a number of translations.
Aristotle
Aristotle discovered, formulated, and analyzed the problem of commensurability. He wondered how ratios for a fair
exchange of heterogeneous things could be set. He searched for a principle that makes it possible to equate what is
apparently unequal and noncomparable. Because each thing has a substance or telos it is by nature different from
any other thing. His challenge was to discover how diverse products can be commensurable and thus have an
exchange value or price. Aristotle's objective was to prove that every exchange of goods has to be an exchange of
equivalents. How can goods of different quality which are exchanged because of these qualitative differences be
compared with each other and be equalized? Aristotle says they must be equalized somehow by some common
measure. There must be some dimension in which they are comparable if the goods are to be equalized. Aristotle
was thus working from the premise that there will be no exchange without equality and that there can be no
equality without commensurability. In other words, when people associate for the exchange of goods each must be
satisfied that both utilities and costs are equalized before exchange takes place. Persons stand as equals in exchange
as soon as their commodities are equalized. Aristotle makes several attempts to solve this paradox
According to Aristotle, value is assigned by man and is not inherent in the goods themselves. He says that exchange
occurs because what the participants want is different from what they have to offer. Need plus demand is what goes
into determining proportionate reciprocity in a given situation. Aristotle explains that the parties form their own
estimations, bargain in the market, and make their own terms and exchange ratios. The exchange ratio is simply the
price of things. For Aristotle, voluntary is presumed just. Exchange must be mutually satisfactory. He sees mutuality
as the basis for exchange and the equating of subjective utilities as the precondition of exchange. There is a range of
reciprocal mutuality that brings about exchange. The actual particular price is determined by bargaining between the
two parties who are equal as persons and different only with respect to their products.
Aristotle appears to have recognized the subjective and relational nature of an exchange ratio. He observed
that an exchange ratio is not a ratio of goods alone nor merely a ratio of people exchanging the goods involved in the
transaction. Rather, it is simultaneously a ratio reflecting the interrelationships among and between all of the people
and all of the goods involved in this transaction. This ratio of proportionate reciprocity is used to equalize both goods
and persons.
For Aristotle, money is a medium of exchange that makes exchange easier by translating subjective qualitative
phenomena into objective quantitative phenomena. Although subjective psychological want satisfaction cannot be
directly measured, the approximate extent of want satisfaction can be articulated indirectly through money. Not
only does money eliminate the need for a double coincidence of wants, it also supplies a convenient and acceptable
expression for the exchange ratio between various goods. Money, as an intermediate measure of all things, is able to
express reciprocity in accordance with a proportion and not on the basis of a precisely equal ratio. Money, according
to Aristotle, has become a convention or type of representation, by which all goods can be measured by some one
thing. Money, as a modulating element and representation of demand, becomes a useful common terminological
tool in the legal stage of the bargaining process.
Cast scorn on making money through a monopoly.
He foresaw significant elements of Austrian value theory. For example, he glimpsed the concept of diminishing
utility and its application to exchange value (i.e., price) determination. He held a theory of the importance of
value determination in evaluating the efficiency of means in attaining human objectives. He also anticipated the
Austrian theory of imputation that holds that the value of productive factors can be obtained via imputation from
the market values of final products. Aristotle was the first to draw a distinction between value in use and
exchange value. His pre-marginal utility theory also rejected the labor theory of value that later was held by many
of the classical economists. In addition, he was the first thinker to analyze the problem of commensurability.
Additionally, Aristotle recognized the paradox of value and the operation of the principle of scarcity.