01_ten principles_MV.pptx

Abitintroaboutmyself LeftShanghaitopursueadreamofstudyingoverseasin20001stopwasCanadaandgraduatedwithanundergraduatedegreeinfinancein2004WenttoOhioStateUintheUSforgraduatestudyandtravelledextensively GraduatedwithmyPhDin2010andworkedforoneyearReturnedtoChengduNowIamaprofessorofeconomicsatSWUFETeachingeconomicsisadreamjobandapassionforme Lecture1TENPRINCIPLESOFECONOMICS Chicago 2005 FujiMt Japan 2009 Paris2011 Igraduated 2010 Chengdu 2012 TheScienceofEconomics oneofthemostwell developedsocialsciences isinterestedwithanendlesslistofquestionsthatsurroundus Whydoairlineschargelessforaround tripticketifthetravelersstayoveraSaturdaynight Whyarepro basketballplayersandcorporateCEOspaidsomuchmore Whyarejobseasytofindinsomeyearsandhardtofindinsomeothers WhyarelivingstandardssomeagerinmanyAfricancountries Andmanymore Themanagementofsociety sresourcesisimportantbecauseresourcesarescarce Scarcityisubiquitousduetolimitationsinmoney time energy capital naturalresources andcleanenvironment etc Infact economicsisallabouthowtoallocatescarceresources The10principlesthatfollowremindyouofit SocietyandScarceResources ThewordeconomycomesfromaGreekwordfor onewhomanagesahousehold Theeconomy outcomesoftheactionspeopletakeintryingtoachievetheirgoalsgivenscarcities Inthewidestsense economics studyof choice SoWhatisEconomics HOWPEOPLEMAKEDECISIONS Decisionmakingisattheheartofeconomics Thefirstfourprinciplesdealwithhowpeoplemakedecisions 0 Thereisnosuchthingasafreelunch Principle 1 PeopleFaceTrade offs Principle 1 PeopleFaceTrade offs Alldecisionsinvolvetradeoffs someofthemmoreapparentandothersmoreobscure Foranindividual thesedecisionscouldbe attendingacertainuniversityinUSgroceryshoppinghowmuchmoretoconsumeForasociety thesedecisionscouldbe environmentvs incomegunsvs butterMakingdecisionsrequirestradingoffonegoalagainstanother Societyfacesafundamentaltradeoffbetweenefficiency 效率 andequity 公平 Efficiencymeanssocietygetsthemaximumbenefitsfromitsscarceresources Equitymeansthebenefitsofthoseresourcesaredistributedfairlyamongthemembersofsociety Toobtainefficiency societyhastoallowindividualsfreedomtomaketheirowndecisionsandrewardfortheirefforts butthatmaynotalwaysleadtoequitableoutcomes lowtaxesforallvs progressiveincometaxstructuresocialsafetynetandpublicprogramstheexampleofasinkingshipCanyougiveanexampleofgivingupequityinfavorofefficiency Insomeway theargumentbetweenalargeandasmallgovernmentisabouthowtomakeachoicebetweenefficiencyandequity Principle 2 TheCostofSomethingIsWhatYouGiveUptoGetIt Makingchoicesrequirecomparingcostsandbenefitsofalternatives Thenetvalue orsurplus ofanalternativeisequalto Benefit OpportunityCostTheopportunitycostofanalternativeoranitemisthetotalcostsofwhatyougiveuptoobtainthatalternativeorthatitem O C directcost valueofthenextbestalternativeMakingachoicemeansitsbenefitsexceednotonlyitsdirectcostbutalsothevalueofthesecondbestalternative Principle 2 TheCostofSomethingIsWhatYouGiveUptoGetIt Example1 Mybestfriend KobeBryant andIgotogethertowatchamovie Principle 2 TheCostofSomethingIsWhatYou GiveUp toGetIt Example2 Shouldyouuseyourfrequent flyercoupontoflytoMiamiforspringbreak Example3 Calculatingyourowntruecostsofgoingtocollege Example4 Calculatingtruecostsofattendingcollegeforstarathletes Marginalchanges 边际变动 aresmall incrementaladjustmentstoanexistingplanofaction Rationalpeoplemakedecisionsbycomparingcostsandbenefitsatthemargin Threeexamples Doestheairlinecompanyrefusetosellstand byseatsatlessthanaveragecost Water ordiamond whichismorevaluable andmoreexpensive Thefailedinvestmentproblem Dowekeeponinvesting Principle 3 RationalPeopleThinkattheMargin Principle 4 PeopleRespondtoIncentives 激励 Changesinmarginalcostsormarginalbenefitsmotivatepeopletochangetheirdecisions behaviors ThanksgivingshoppingintheUS andtaobaomaniaon11 11 HighergasolinetaxledEuropeanstodrivesmallervehicles HighercigarettestaxintroducedbyClintonadministrationandteenagesmokingNewpoliciesshouldalwaysbewaryoftheunintended oftenindirect effectsinducedbythechangeinincentives Forexample mandatoryseat beltlawresultedinlowerfatalityperaccident butmoreaccidents seePeltzman 1975 Canurbantrafficbesolvedbybuildingbetterroads HOWPEOPLEINTERACT An economy isjustagroupofpeopleinteractingwitheachother Thenextthreeprinciplesdealwithhowpeopleinteract 0 Principle 5 TradeCanMakeEveryoneBetterOff Peoplegainfromtheirabilitytovoluntarilytradewithoneanother Tradeallowspeopletospecializeinwhattheydobestandyetbeabletobuyawidevarietyofthingsatlowercost Competitionresultsinthemaximumgainsfromtrade Principle 6 MarketsAreUsuallyaGoodWaytoOrganizeEconomicActivity Amarketeconomyisaneconomythatallocatesresourcesthroughthedecentralizeddecisionsofmanyfirmsandhouseholds i e self interest astheyinteractinmarketsforgoodsandservices AdamSmith thefoundingfatherofmoderneconomics saidthathouseholdsandfirmsinteractinginmarketsactasifguidedbyan invisiblehand The invisiblehand isessentiallythepricesystemthathelpallocateeconomicsresources Itisnotfromthebenevolenceofthebutcher thebrewer orthebakerthatweexpectourdinner butfromtheirregardtotheirowninterest Everyindividualneitherintendstopromotethepublicinterest norknowshowmuchheispromotingit Heintendsonlyhisowngain andheisinthis asinmanyothercases ledbyaninvisiblehandtopromoteanendwhichwasnopartofhisintention AdamSmith 1776 WealthofNations 国富论 Principle 7 GovernmentsCanSometimesImproveMarketOutcomes Governmentcanintervene whenfreemarketdoesnotfullyachievethegoalsofefficiencyandequity Marketfailureoccurswhenthemarketfailstoallocateresourcesefficiently Marketfailuremaybecausedby anexternality whichistheimpactofonepersonorfirm sactionsonthewell beingofabystander marketpower whichistheabilityofasinglepersonorfirmtoundulyinfluencemarketprices Governmentsalsohavearoletoimproveequitableoutcomesamongitscitizensbasedonsocialvalues AMomentofMindYoga Identifywhichtypeofmarketfailureisthefollowing Regulatinghigh speedrailwaypricesProhibitingsmokinginpublicplacesChargepeak hourtollstoreducetrafficcongestionsinurbanareas HOWTHEECONOMYASAWHOLEWORKS Thelastthreeprinciplesdealwiththeeconomyasawhole 0 Thedifferenceinlivingstandardsarestaggeringbotharoundtheworldandovertime Principle 8 ACountry sStandardofLivingDependsonItsAbilitytoProduceGoodsandServices Almostallvariationinlivingstandardareexplainedbydifferenceincountries productivities Productivityistheamountofgoodsandservicesproducedfromeachhourofaworker stime Inflation 通货膨胀 isanincreaseintheoveralllevelofpricesintheeconomy Principle 9 IntheLongRun PricesRiseWhentheGovernmentPrintsTooMuchMoney Onecauseofinflationisthegrowthinthequantityofmoney Whenthegovernmentcreateslargequantitiesofmoney thevalueofthemoneyfalls Principle 10 ButintheShortRun SocietyFacesaShort runTrade offbetwe