Who wants to be an economist? 30 25

Who wants to be an economist? 30 25

Who wants to be an economist? 30 25 20

15 10 5

0 Zero-sum thinking Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match So if Bill Gates is rich, he must have taken that

wealth from others The economic pie is only so big, so government has to make sure we all get the same size slice fairness and social justice Fallacy of composition The mistaken assumption that what applies to a

part applies to the whole In economics, were looking at the economy in total not any given individual, company or industry We know that the economy is dynamic some companies and industries must pass (typesetters, milkmen) so others can rise (app

developers, organic bakers) Fractional Reserve Banking A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits Since all depositors wont demand their

money at once, banks lend out the rest and earn interest and fees Fractional reserve banking creates new money to create wealth Why does corruption lead to poverty? The laws delay...

Bureaucrat ability to delay often means an opportunity for bribes The lost opportunity for SRTHAU in businesses not started, investment not made, jobs not created Which means fewer goods and services... and less prosperity

Just what does an economist do? Economists Do research including preparing surveys and crunching the numbers

Economists Do research including preparing surveys and crunching the numbers Forecast how the economy might change in the future

Economists Do research including preparing surveys and crunching the numbers Forecast how the economy might change in the future They study topics such as prices, jobs, interest rates, taxes, the stock market, commodities,

money, the banking system, impacts from political decisions Economists They then write up their reports and present the findings to clients

Economists They then write up their reports and present the findings to clients They are really good at PowerPoint and developing charts, graphs and flow charts Economists

They then write up their reports and present the findings to clients They are really good at PowerPoint and developing charts, graphs and flow charts They spend a lot of time crunching numbers and doing statistical modeling

Economists More than half of economists work for federal, state and local governments Economists More than half of economists work for federal, state and local governments

Many work for banks, consulting firms, NGOs or are self-employed NGOs United Nations, Greenpeace, Amnesty International, AARP, Doctors Without Borders,

Economists More than half of economists work for federal, state and local governments Many work for banks, consulting firms, NGOs or are self-employed And the rest live in the academic environment or non-profit think tanks such as The

Heritage Foundation, Hoover Institution and Brookings Institute Economists The media pay is $90,000 year Economists

The media pay is $90,000 year There are just 15,400 jobs and its a slowgrowth profession Economists The media pay is $90,000 year There are just 15,400 jobs and its a slowgrowth profession Most positions require a Ph.D. or at least a

masters degree Economists The media pay is $90,000 year There are just 15,400 jobs and its a slowgrowth profession Most positions require a Ph.D. or at least a masters degree

Lots of young people with a B.A. degree in econ work in other fields Top economics schools Top economics schools

Harvard Massachusetts Institute of Technology (MIT) Princeton University of Chicago

Stanford University of California Berkeley Northwestern Yale University of Pennsylvania Columbia

Top economics schools University of Florida was #48 History of economics Modern economics began in 1776 with our pal Adam Smith (1723-1790) and The Wealth of Nations

History of economics Modern economics began in 1776 with our pal Adam Smith (1723-1790) and The Wealth of Nations Smith influenced generations of economists and thinkers including David Ricardo, John

Stuart Mill, James Madison, Thomas Jefferson, Alexander Hamilton and Thomas Sowell Adam Smith Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public

interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of

his intention.[ Adam Smith In short, the invisible hand refers to the selfregulating behavior of the marketplace when people, acting in their own self interest, benefit society

History of economics Over time, schools of economics formed about common framework of assumptions and that continues today History of economics Over time, schools of economics formed

about common framework of assumptions and that continues today Chicago, London, Austrian, Carnegie also loosely organized around saltwater schools (on both U.S. coasts) and freshwater schools (Chicago, Carnegie Mellon)

Mercantilists Popular from 16th to late 18th centuries, the earliest of the economic schools Mercantilists Popular from 16th to late 18th centuries, the earliest of the economic schools

James Steuart was most prominent writer Mercantilists argued that the most important role for government was to ensure a positive balance of trade export more than you import Mercantilists

Popular from 16th to late 18th centuries, the earliest of the economic schools James Steuart was most prominent writer Mercantilists argued that the most important role for government was to ensure a positive balance of trade export more than you import

They were zero summers! Mercantilists Were concerned with the power of their nation relative to others They didnt care about SRTHAU to maximize their nations standard of living, they wanted

more wealth and military power than other nations Mercantilists Were concerned with the power of their nation relative to others They didnt care about SRTHAU to maximize their

nations standard of living, they wanted more wealth and military power than other nations Typical policies included overseas colonies, ban on the export of gold, tariffs, wage limits, imperialism, subsidies for domestic manufacture Final Mercantilist thought

Although gone from modern economic thinking, concepts about imports/exports remain such as favorable balance of trade Classical economics Wealth of Nations ended the mercantilists, although some of their policies such as

positive balance of trade and tariffs endure Classical economics Wealth of Nations ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure Smith realized that the prosperity of a nation

depended on creating more goods and services and that economic policy should be for everyones benefit, not just the merchants Classical economics Wealth of Nations ended the mercantilists, although some of their policies such as

positive balance of trade and tariffs endure Smith realized that the prosperity of a nation depended on creating more goods and services and that economic policy should be for everyones benefit, not just the merchants Smith also rejected slavery and imperialism

Classical economics Wealth of Nations ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure Smith realized that the prosperity of a nation depended on creating more goods and services and that economic policy should be for everyones benefit,

not just the merchants Smith also rejected slavery and imperialism His theories led to the school of Classical Economics, with a nod to the Physiocrats Physiocrats French economists who advocated that

productive farm work, not gold, was key to wealth of a nation Because of the agrarian society, they thought only agriculture land counted First used the term laissez-faire originally meaning not having the government intervene in marketplace on behalf of merchants

Classical economics Smith was radical: preached a sharply reduced role for government and elites Classical economics Smith was radical: preached a sharply reduced

role for government and elites Argued that wealth is not a zero-sum game everyone can win in both foreign trade and the domestic market Classical economics Smith was radical: preached a sharply reduced

role for government and elites Argued that wealth is not a zero-sum game everyone can win in both foreign trade and the domestic market The free market will regulate itself due to the invisible hand

Classical economics Smith was radical: preached a sharply reduced role for government and elites Argued that wealth is not a zero-sum game everyone can win in both foreign trade and the domestic market The free market will regulate itself due to the

invisible hand The Classical economists changed economics from a concern with a rulers interests to that of the nation David Ricardo 1772-1823 Most influential economist of the early 19th

century Developed comparative advantage, which showed how two unequal nations could trade to mutual benefit Was also the first to use economics dispassionately principles over immediate policy issues

Says Law Developed by French economist Jean-Baptiste Say (1767-1832) Says Law Developed by French economist Jean-Baptiste

Say (1767-1832) Say addressed the fears that a growing nation would produce so many good and services that it would exceed the ability of the people to buy them Says Law

Developed by French economist Jean-Baptiste Say (1767-1832) Say addressed the fears that a growing nation would produce so many good and services that it would exceed the ability of the people to buy them Say argued that the national output and the income people had were related supply creates its own

demand and, therefore, no limit to what it can produce Modern economics First exclusive journal was in 1886, The Quarterly Journal of Economics at Harvard

Modern economics First exclusive journal was in 1886, The Quarterly Journal of Economics at Harvard First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in 1875

Modern economics First exclusive journal was in 1886, The Quarterly Journal of Economics at Harvard First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in 1875 Economics in 20th century began to turn to

mathematics rather than verbal discourses Modern economics First exclusive journal was in 1886, The Quarterly Journal of Economics at Harvard First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in

1875 Economics in 20th century began to turn to mathematics rather than verbal discourses At LAF, weve continued the verbal tradition! Marginalist revolution

Marginalist revolution Refers to acceptance among economists that prices were based on the demands of consumers, rather than just on the cost of the producers Marginalist revolution

Refers to acceptance among economists that prices were based on the demands of consumers, rather than just on the cost of the producers Classical econ says labor and other inputs are crucial factors in prices. Marx went even further when he wrote that exploitation of

labor was the main factor in economics and society Marginalist revolution Marginal utility theory of value: what consumers consider useful was what influenced prices

So while if youre dying of thirst water is more valuable than diamonds Once you have enough water, its the marginal utility of having another gallon of water compared to a diamond. Because most of us have lots of water, diamonds will sell for more

Marginalist revolution, redux Anyway, its the combo of supply (dependent on the cost of production) and demand (dependent on marginal utility) which determines prices Ok?

Marginalist revolution, redux Anyway, its the combo of supply (dependent on the cost of production) and demand (dependent on marginal utility) which determines prices Ok?

Equilibrium theory Developed by Frenchman Leon Walras (18341910) Its a branch of theoretical economics (because things are rarely in equilibrium) that looks at prices/supply and demand for firms, industries and particular markets

Equilibrium theory Developed by Frenchman Leon Walras (1834-1910) Its a branch of theoretical economics (because things are rarely in equilibrium) that looks at prices/ supply and demand for firms, industries and particular markets In a sentence: equilibrium theory notes that

everything in an economy is interconnected so that one small change can set in motion many others Try this definition The theory provides a summary description of economic interaction in a society where people are free to pursue their own interests. The theory may

be viewed as an attempt to answer the question of whether trade arranged through markets could match demands with supplies for millions of goods and services in an economically efficient way. Notice that the question is could trade achieve an efficient outcome, not does it do so.

Ok, whats macro and micro?? Macroeconomics: basically deals with the performance, structure, and behavior of a national economy as a whole. Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national

income, employment, inflation, investment, and international trade. And micro? Microeconomics is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources, typically in

markets where goods or services are being bought and sold. Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the supply and demand of goods and services.

Why should I care?? Because politicians constantly propose solutions to problems without the slightest attention to how the repercussions of their solution will reverberate throughout the economy

John Maynard Keynes (say Cains) Keynes (1883-1946) was the most prominent economist of the 20th century His book The General Theory of Employment, Interest and Money became the prevailing orthodoxy around the world with a few

important exceptions Keynes rose to prominence after the Great Depression Keynesian economics Keynes argued that inadequate aggregate demand could lead to high unemployment

Keynesian economics Keynes argued that inadequate aggregate demand could lead to high unemployment He argued for governments to spend money during recessions and depressions to spur the economy (see President Obama)

Keynesian economics Keynes argued that inadequate aggregate demand could lead to high unemployment He argued for governments to spend money during recessions and depressions to spur the economy (see President Obama)

Thus government could smooth out the boom and bust cycles inherent in free markets Keynesian economics Keynes argued that inadequate aggregate demand could lead to high unemployment He argued for governments to spend money

during recessions and depressions to spur the economy (see President Obama) Thus government could smooth out the boom and bust cycles inherent in free markets Was the dominant thinking through the 1970s and resurfaced with the recent global recession

Milton Friedman Friedman (1912-2006) was an American economist at the University of Chicago who started the Chicago school of economics He opposed Keynesian theory and argued the markets were more rational and responsive than governments were

Won Nobel prize in 1976 when raging inflation worldwide undermined the Keynesians ability to control the economy Advisor to President Reagan Milton Friedman I am favor of cutting taxes under any

circumstances and for any excuse, for any reason, whenever it's possible. The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.

F.A. Hayek Austrian economist (1899-1992) who won Nobel prize in 1974 while at U of Chicago Was the one who developed theory of prices communicating information that enables people to coordinate their plans Road to Serfdom is a must-read for every

budding economist. A war-cry against central planning Paul Krugman Nobel-prize winner in 2008 Hugely influential because he works for the New York Times and his column is gospel for liberal politicians

A Keynesian on steroids I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal, and Im proud of it.

Assignment 4/22 Chapter 20: International Trade

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