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Lecture 1
(Chapter 1, 2)
What is Economics?
What is Macroeconomics?
<Lecturer name>
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Welcome to Macro1 and your first
(serious) study in Economics!
You will be studying Economics
such an exciting time in a history!
- Brexit and Trump what are the implications of
these political outcomes on the economy?
Industry 4.0 and the future of work
Increasing inequality not just between countries
but within countries
Dealing with climate change in a global economy
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Before going into detail, a bit of
house keeping for macro1
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RMIT Blackboard
https://lms.rmit.edu.au/
Ensure to login in every week to keep up to date
(many questions you may have will be mostly answered
in Blackboard)
For the first time, click Start here
Learning Resources you can obtain weekly lecture
slides, tutorial questions
Wednesdays lectures will be recorded and will be put
on Learning Resources so, no need to panic even if
you miss a lecture!
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Aplia (online self learning resource)
You can complete weekly practice problems
using APLIA (these are not graded but are
useful for revision and test/exam practice)
Aplia is available via Blackboard
It contains lots of practice questions for each
chapter (tip: its useful to practice MCQs as
part of your preparations for in final exam)
You can use this resource even if you do not
buy a textbook!
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Three assessment components
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Why we think it is important to study
Economics
Economics can be used in everyday life, because in
economics we study about decisions and the
decision making processes of individuals, firms and
the government.
Students with an understanding of economics are
well placed to do well in life (e.g. to get a better
job and be more successful at managing their
financial affairs)
When you understand economics you are
empowered to critically interpret economic data
and statements made in the news, by politicians, etc.
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Chapter 1: Ten Lessons from
Economics
Learning Objectives:
Allocation of scarce resources
Trade-offs (opportunity cost)
Meaning of opportunity cost
Decision making at the margin
Role of incentives in influencing behaviour
Benefits of trade
Markets as a form of economic system to make key
economic decisions
Identifying trends from data
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What an established economist
said about Economics as a
discipline
Maurice Obstfeld (2008):
The beauty of economics as an intellectual pursuit is its position at
the intersection of formal theory, statistical analysis, and human
events coupled with its ultimate potential to improve peoples
everyday lives. A master economist must assume away the
distracting inessential details of a situation in the interest of
mathematical clarity. At the same time, he or she must see how
relevant subtleties may affect the interpretation of the data and the
applicability of different models in real life. Because the ultimate
policy decisions at stake are so complex, with such vast potential to
do harm or good in the world, economics (and especially unsettled
subject to macroeconomics) is perpetually unsettled, constant
questioning and reassessment.
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What Economists do ?
Economists are extremely influential to direct policy (e.g. the carbon
tax, interest rates...)
Some advantages of being able to use economic data and thinking like an
economist include:
Knowing how the economic policy works. This can give you extra
competitive edges at a workplace
Sound economic judgment can enhance your own decision making
capability. E.g. People doing well in the stock market know how to read
macroeconomics data 15
What we will discuss today
We start with the fundamental principles of
economics (Ch. 1)
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Ch. 1: Basic economics principles:
Scarcity
Scarcity refers to the limited nature of societys
resources.
For example, Hasan wished he had more time to
study but his time was a scarce resource.
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Scarcity
Likewise, society must decide what jobs will be done and
who will do them. It must also allocate the goods and
services that are produced.
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Economics
In most societies, resources are allocated
through the combined choices of millions of
households and firms.
Forces of demand and supply (that you learn
about in Prices and Markets)
Price signals guide decision making processes
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Opportunity cost
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The cost of something is what you
give up to get it
Decisions require comparing costs and
benefits of alternatives.
Whether to go to university or to work?
Whether to go to lectures or sleep in?
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Chapter 2: Thinking Like an
Economist
Learning Objectives:
How economists apply methods of science
How assumptions and models shed light on
understanding the world
Introduce the circular flow model
Microeconomics versus macroeconomics
Positive and normative
Role of economists in policy making
Why do economists sometimes disagree? 27
The economist as a scientist
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The role of assumptions in economics
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The role of assumptions in economics
Assumptions help us to simplify complex
situations, focusing our attention on the details
that are most relevant to the problem at hand.
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The Distinction Between Microeconomics
and Macroeconomics
Microeconomics is the study of how households
and firms make decisions and how they interact
in markets.
For example, microeconomics focuses on
individual markets, examining how incentives
and trade-offs influence buyer and seller
behaviour.
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Macroeconomics
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The economist as policy advisor
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Positive statements
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Normative statements
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Why economists disagree
Positive statements are statements about facts.