Lecture 1

• Economics

  The social science that studies the choices that individuals, business, governments, and entire societies make as they cope with scarcity, the incentives that influence those choices, and the arrangements that coordinate them
• Microeconomics

  The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments
• Macroeconomics

  The study of the aggregate effects on the national economy and the global economy of the choices that individuals, businesses, and governments make
• Scarcity

  The condition that arises because wants exceed the ability of resources to satisfy them
• All economic questions and problems arise because human wants exceed the resources available to satisfy them
• Faced with scarcity, we must make choices - we must choose among the available alternatives
• The choices we make depend on the incentives we face
• Goods and services

  The objects (goods) and action (services) that people value and produce to satisfy human wants
• What, how, and for whom goods and services get produced

  • What goods and services get produced and in what quantities
  • How are goods and services produced
  • For Whom are the various goods and services produced
• Self-interest

  The choices that are best for individual who makes them are choices made in pursuit of self-interest
• Social interest

  The choices that are best for society as a whole are choices made in the social interest
• Choices made in self-interest can also promote the social interest if they benefit others
• Self-interest of AI Companies

  • Innovation and Market Leadership
  • Profit Maximization
  • Technological Advancements
  • Economic Growth
  • Solving Global Challenges
• Choices made in self-interest can also have counterpoints to social interest promotion, such as ethical concerns and economic disruption
• Economic ideas that define the economic way of thinking

  • Choice is a tradeoff
  • Cost is what you must give up to get something
  • Benefit is what you gain from something
  • People make rational choices by comparing benefits and costs
  • Most choices are "how much" choices made at the margin
  • Choices respond to incentives
• Tradeoff

  An exchange - giving up one thing to get something else
• Opportunity cost

  The best thing that you must give up to get something - the highest-valued alternative forgone
• Benefit

  The gain or pleasure that something brings, measured by what you are willing to give up
• Rational choice

  A choice that uses the available resources to best achieve the objective of the person making the choice
• Marginal cost (MC)

  The opportunity cost of a 1 unit increase in an activity
• Marginal benefit (MB)

  What you gain when you get 1 unit of something, measured by what you are willing to give up to get one additional unit of it
• Economists try to understand and predict the effects of economic forces by using the scientific method
• Economic models

  Highly simplified representation of a more complicated reality, used to study economic issues
• Economists sometimes disagree about assumptions, models, and policy, with some disagreements being normative (about what ought to be) and others being positive (about what is)
• Positive statements

  Descriptive, attempt to describe the world as it is, can be confirmed or refuted by examining evidence
• Normative statements

  Prescriptive, attempt to prescribe how the world should be
• The benefits of being in school include the present enjoyment of student life and a higher future income, while the costs include tuition, books, other study costs, and forgone earnings
• For most people, the net benefit of being in school is big, but some people may expect the benefit to be less than the opportunity cost