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0:10
so there's the econ 101 definition economics is the study of how people businesses societies or nations deal with scarcity there's lots of definitions of economics if you ask 10 different economists what they do they they give you 10 different answers so my favorite definition of economics is economics is what economists do and and if we go back to the first slide you'll you'll see that i'm pretty much done so i'll open it up for questions no just kidding uh what do economists do
0:46
uh we study how people deal with scarcity how we distribute resources who are these characters here uh all the way on the left that's alfred marshall he's sort of the father of the supply and demand model the market model he wrote in the late 1800s the guy in the middle that's adam smith late 1700s he looked at rational self-interest and how raster rational self-interest sort of promotes social well interests under a certain set of conditions and who's that guy on the right
1:22
milton friedman yes milton friedman perhaps 20th century's most vocal advocate for free market in the first day of econ or the second day of econ most econ students are presented with a picture that looks like this the so-called circular flow what do we have we have households providing labor to businesses in exchange for incomes and wages businesses in turn provide goods and services and households pay for those goods and services with dollars right so resources
1:57
moving around in an economy right and everybody's motivated by incentives workers have an incentive to do good work so they get high pay businesses have incentives to provide quality products at low cost so that they earn profits all right but maybe there's something missing from that picture right where are the natural systems in this system you can expand on the circular flow to include that but there's there's john crutilla in the corner wondering if we should reconsider some of this
2:28
how do economists study all that stuff math statistics data reasoning right we use a lot of tools probably the same set of tools that most people in this room use right then what well we try to provide useful information right useful information to decision makers we we kind of live in the world of what ifs right what might happen if or how do we get here we look at cause and effect costs and benefits of an action or an inaction what's the best way to accomplish a particular goal
3:06
we use theory and data and math statistics to hopefully make the world a better place help solve problems that's what we do economics is supposed to be objective as we as we talked about a few minutes ago right i like to think about it as a cold-hearted search for the truth we don't we don't come in typically as advocates right we're analysts hopefully for the most part right what are we advocating for good answers really i get this question uh often is economics a science um
3:44
i don't know honestly uh yes and no if if you think about what karl popper said about economics you can about science sciences the study of things that can be falsified right and so yeah do we try and do that yes we do we follow the scientific method yes we make observations about the way the world works try and think about the way the world works theorize collect data to test the theory right and then revisit the theory based on the empirical results so but unlike some physical scientists we
4:18
don't have controlled experiments right just like ecosystems there's really only one economy and it's hard to control everything together so we don't have controlled experiments it's messy right we have to use the facts that are given to us that are available and and try and use good math and good statistics to draw inference daniel hausman's a philosophy professor at wisconsin madison i hope i didn't screw that up he had a an interview in the new york times recently and he said
4:48
uh and he philosophizes about things related to the economy he said the problems that we want economists to help solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum i like that i like that analogy a lot right it's messy there's a lot of factors at play and we analyze a subset of those factors are we always going to get it right no we're not always going to get it right so if economics is a science it's it's an inexact one
5:15
so what can economists study uh anything that involves decision making anything that involves trade-offs or choices well pretty much anything right pretty much anything this is the journal of economic literature classification classification of fields in economics so if you can read the font there's we haven't used up all the letters if you go through but we're getting close i'm not sure what we're gonna do when we run out of letters uh but just to give you a sense of you know
5:41
the the discipline of economics is very broad and covers a lot of different topics where are we we're we're in queue uh ag in natural resource economics environmental and ecological economics and if we get to talk about the difference between environmental economics and ecological economics that's an interesting topic that perhaps we can address sometime in the next few days
6:05
all right the two big branches right if if all our disciplines are trees uh you go back 100 years or 200 years in our study we're all working on the trunk um as our disciplines evolve and as the state of knowledge improves we're getting out into the leaves now right we're all our thesis topics if you think about it right think about your the title of your of your dissertation it was probably really long and esoteric very fine tuned topic well a long time ago we looked at the big things
6:33
so the big branches in this tree of economics are macro and micro right macroeconomics is the study of an entire economy we look at broadly defined economic variables none of us are macro economists so we're not going to get a whole lot of this this week i have friends who are macro economists and they concern themselves with forecasting what's going to happen what's going to happen to the regional economy in the next year what's going to happen to the state economy in the next
6:59
year what's going to happen to the national economy in the next year unfortunately this is what most people think about when they think about what an economist does some fields in macroeconomics again monetary international stuff it's important to point out that you know we have all these these fields in econ there aren't there aren't well-defined fences around these fields we we kind of flow into each other and the theory that you might use in one sub-discipline carries over and can be
7:29
applied in other sub disciplines like sheila said a few minutes ago that the the field of development economics has a lot of micro in it and it has a lot of macro in it as well microeconomics a fine-tuned look at the way people behave interact trade things an analogy that i like if if the economy is a forest the macro economist is flying over the forest in an airplane so getting a sense of the big picture what does the whole ecosystem look like the micro economist is walking through the forest
8:02
looking at individual interactions between things in the forest right micro fields there are many and again there's there's overlap here but you see health education industrial organization regional labor demographics economists study all this stuff what kind of skills do economists use the same set of skills that you all use i'm sure critical thinking math statistics a lot of data analysis a lot of technical software and obviously writing and reporting and communication are essential
8:34
where do economists work i don't remember where i got this figure luckily it's vague
8:45
about half of all economists work for government other areas in the private sector banking and investments consulting firms ngos obviously academia uh is everyone that studies economics an economist no not not by any stretch one of the funny things about about economics is that it's hard to do economics without graduate training because of the perhaps because of the math because of the statistical analysis that's involved as undergraduates you don't get to do
9:21
economics perhaps until your senior year when you get into that econometrics course and we you know if we know students are going to go to graduate school we push them to do that earlier on so they can start doing it and seeing what it's going to be like but no there's there's lots of potential job opportunities for someone with an economics background here are some for an undergrad thinking about majoring in economics this is exciting and scary at the same time there's not a defined career path
9:48
for those that study economics you can really go into a lot of different areas because of the skills that you have the skill set that you develop when studying economics do economists agree on everything no definitely not uh there's a lot of uncertainty there's a lot of ambiguity it's it's uh it's it's not a clear cut and dry type of science and so no um what what do economists agree on well surprisingly a lot just some some general things here and we'll get into a lot of the specifics
10:21
during the course of the week but okay we agree that public policy should be designed to improve the well-being of the public we agree that people respond to incentives we agree that voluntary transactions are good and we agree that analyzing the costs and benefits of actions and inaction gives us a lot of information about the way the world works and and why we are where we are i'll get a lot more on this as we go along one of the most important concepts in econ if you could if you could
10:55
grab a hold of two or three things right and and i think about this from teaching undergrads i teach the first class the econ 101 course to 250 or so students every semester what do i want them to leave with i know that most of them are not going to be economists most of them are not going to be econ majors i want them to understand the idea of opportunity costs first and foremost that's probably the biggest thing right um what is that tin stafford there is no such thing as a
11:21
free lunch that's that's that's what that means that's the idea of opportunity cost there's no such thing as a free lunch right even though it might not involve money out of your pocket every action that you engage in involves some kind of opportunity cost you're giving up something this is because of scarce resources what resources are scarce all of them right our time our energy our incomes our natural resources all scares right all limited in supply second most important concept i think
11:48
uh and sheila and jim might might add to this or disagree but but being able to think at the margin being able to think about change as being incremental right rather than absolute [Music]
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