Welcome to BAUD 200

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Welcome to BAUD 200

• Economic Foundation for Business

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Index Cards Front

• BUAD 200 Spring 06 Mon.
• Name (underline what you go by)
• Email (the one you read)
• Phone
• Major
• Source of News
• Favorite Book Fiction or Non

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Index Card Back

• Most recent Job Describe activities
• Expectations 6 years from now
• Message to ME

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ECONOMICS

• Economics Is a Science That Analyzes How
  Individuals Behave, in a World of Scarcity.

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Construction of Theory

• Abstractions
• Definitions
• Assumptions
• Implications
• Adoption of Theory

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A Good Is Anything, That an Individual Wants to
Have More Of, at Zero Price.

• Anything Material or Non-material
• An individual wants
• Have More of
• At Zero Price

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Resource Anything that can be used to produce
Goods.

• Land all its attributes
• Labor People
• Capital Buildings Equipment

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Assumptions

• Humankind has unlimited wants
• Our resources are limited
• Scarcity Individually, and as a Society, we do
  not have enough resources to produce all the
  things we want.

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Implications of Scarcity

• Choice people must choose which goods to
  acquire.
• Economic Cost The Cost of any action, is the
  personal value of the next highest valued
  alternative given-up.
• Competition We are in a state of competition for
  the use of resources

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Forms of Competition in Society

• Violence, or Threat of Violence
• Social/Political competition on the basis of
  some limited behavior or characteristic
• Economic/Market competition based on offering
  the highest value in exchange.

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Primary Social Goal Fairness

• Violence not fair.
• Social political not fair.
• Economic not fair,
• Life is NOT FAIR !!
• But, the market offers the broadest and most fair
  system

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What Economics Is About

• Microeconomics decisions of individuals and
  firms what to buy and what to produce.
• Macroeconomics the whole economic system and the
  role of government.

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Mechanisms of Choice

• Political our representatives make choices
• Economic/market individuals and firms make
  choices based on relative prices about what to
  produce

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Ten Principles of Economics

• Individual decision making
• How people interact
• The economy as a whole

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Individual Decision Making

• People Face Trade-offs Choice
• Opportunity Cost
• Rational people think at the margins
• People respond to incentives

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How People Interact

• Trade Makes everyone better off
• The market system organizes production
  efficiently
• Markets outcomes can sometimes be improved upon
  by Government

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The Economy as a Whole

• The standard of living depends on productivity
• Inflation results from too much Money
• The short-run trade-off inflation vrs.
  unemployment

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Circular Flow Diagram of the Exchange Economy
 
Product Markets
Goods Services
Goods Services
's
's Revenue
  FIRMS
HOUSEHOLD
's
's Income
Inputs
Resources
  Resource Markets
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Circular Flow Diagram of the Exchange Economy
(p23)

• Households Decisions What to sell? What to buy?
  Assume Maximize Utility
• Firms Decisions What inputs to use? What to
  produce? Assume Maximize Profits.
• Markets Factor Markets, Product Markets
• Role of Money The medium of exchange

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Scarcity ? Society Choices

• What to produce? Goal find the mixture of outputs
  that maximizes societys value.
• How to produce? Goal find the optimal mix of
  inputs to maximize technical output.
• For whom to produce? Who will get to consume the
  goods produced.