Class Four

1．The definition of economics:

It’s the study of the emergence of order, and wealth creation and the consequences of the choices made as part of the extended order of human cooperation. (The definition that captures how we deal with scarcity)

*What does “the extended order of human cooperation” mean? What are the “consequences”?  

i. Scarcity vs Abundance

Most definition focuses on the idea of scarcity. (How would that change over time.)When we need sth., we have to give up sth.,since our time is not infinite.

ii. But some people now believe that some aspects of our life are not characterized by scarcity anymore but by abundance: the population who work on farms from 90% to 2%, and much better, much easier. We’ve learned how market deal with Scarcity problem, we need to understand how market response to a situation where we have lots of abundance.

iii. In daily life, most problems have some economic component: health care,etc.. In this class, we don’t tell you how to think about them, but find the starting point to think about them. Example: the heath care problem.

2. The two fields of economics:

Micro: we analyze the choices individual choosing agent made.

Macro: It takes the individual decision and asks how it passes to society as large, the study of price theory.  (no reason to separate the two)

*Why definite them like this?

---It avoids us fell in a trap of thinking somebody is out there allocating resources and determining everything (the president can do very little to economy)

Case. Macro insights: Selling body parts:

It’s illegal in U.S. How would the incentives change in people. Some people want to sell it for 100,000, but it’s against the law, so people won’t sell it and then got nothing. Thus there’ll be less kidneys; we also see the effects on people who want kidney. We ask potential buyers and potential sellers respond to incentives, and WHAT’S THE CONSEQUENCE OF THAT?

Case. Obesity problem:

How we deal with this problem? We see the data and found that obesity had increased in U.S. WHY? How do economists start this enquiry? We think about how incentive changes:

i.                     The cost of eating, or everything has decreased (a typical U.S. family only spend 10% of their income on food now).

ii.                   Better medicine means it’s getting cheaper to eat unhealthily: you can easily fix your body.

3. Why do we study EWOT?

To be a good economist, firstly we need to know how economy works when it’s working WELL.

*What’s amazing: There’s no farm in NYC, but nobody has worried that there’ll be no food in NYC.

*Three reasons to study economics:

i.                     The amazement and wonder in it (and around the world).

iii.                 Get certain concept right: Intention (reason for lots of confusion in the world) doesn’t equal result.

iv.                  Get facts right for certain things: People need to understand certain important facts. (why the understanding of economic numbers and data important: 10% increase means a lot, then our behavior will change. It makes sense to understand the numbers)