Economics Defined

1
Economics Defined

• Economics - The study of how individuals and
  societies allocate scarce wants among competing
  needs.
• The study of the choices individuals and
  societies make with respect to scarcity.
• Economics is not just about production,
  consumption, money, and profits. Economics has
  been applied to the study of families, crime, and
  of course, history.

2
The New Economic History

• New economic history (Clio-metrics) The
  application of economic theory and statistical
  methods to problems in history, as opposed to the
  study of historical questions that had some
  economic content.
• Clio - the muse of history
• Metrics - measurement
• What is the alternative or traditional approach
  to economic history?
• Commonsense empiricism Utilizing direct
  observation and commonsense, rather than \formal
  statistical analysis, to answer questions.
• Problem Anecdotal evidence is frequently
  subjective, heavily influenced by the experience
  and bias of the researcher.

3
Cost-Benefit Analysis

• People Respond to Incentives!!!
• People make choices by weighing the costs and
  benefits created by the choice. To understand
  why people make the choices they make, one must
  identify the appropriate costs and benefits.

4
Path Dependency

• Economists typically assume existing institutions
  are optimal and do not require explanation.
• However, time does matter. Institutions do have
  a beginning and an end and how these develop
  dictates the present.
• Path dependency (historical determinism) the
  idea that the present is dependent upon the past.
  Institutions and events today are a function of
  actions taken yesterday.

5
The Economics of QWERTY

• David, Paul. 1985. Clio and the Economics of
  QWERTY. American Economic Review. 75, n. 2
  (May) 332-37
• How do we explain the design of the keyboard?
• Why is New York the economic capital of the
  United States and the world?

6
Why do industries tend to develop in specific
geographic areas?

• A localized industry gains a great advantage
  from the fact that it offers a constant market
  for skill. Employers are apt to resort to any
  place where they are likely to find a good choice
  of workers with the special skill which they
  require while men seeking employment naturally
  go to places where there are many employers who
  need such a skill as theirs and where therefore
  it is likely to find a good market. Alfed
  Marshall

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Course Outline

• We will review the basic elements of the economy
• Q f(L, N, K)
• Q output or economic growth
• L Land N Labor K Capital
• We will also consider M (Money) and G
  (Government). The specific order will be
• Q, M, L, N, K