Economics: A few basics Tim Moore

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Economics A few basics Tim Moore
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The purpose today

• This is a brief overview that may helps you
  engage with economics and economists for the rest
  of the workshop (and in the future)
• Two elements
• Understanding and critiquing economics
• Some basic concepts

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1. Understanding and critiquing economics
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From here

• What is economics?
• How to grapple with it?
• Sources of further information
• Particularly relevant areas

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What is economics?

• Many things are attributed to economic reasons
• There is a political rhetoric
• Use can be inconsistent
• The way I view economics
• A method of allocating resources
• A thorough way to take account of many groups and
  secondary effects (at its best)
• Can enable decisions to be made

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Economic concepts

• What are the values?
• Go beyond economic rationalism
• Sometimes explicit, although often implicit
• Utilitarianism is common
• Weight to what can be observed
• Often bias to the status quo
• Income, consumption become key

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Economic concepts

• What are the assumptions involved?
• They are often implicit
• What is the scope of the argument?
• Economic concepts often involve
• Interaction of variables (Eg. Demand and supply)
• Secondary effects
• Trade-offs

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Economic concepts

• There are often multiple concepts within an
  argument break them down
• Look at your own economic experience
• Look at several explanations or views
• There is often a plurality of views and
  approaches among economists

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Critiquing concepts

• Are the values appropriate?
• Are the assumptions valid?
• What happens if they dont hold?
• Is there a false precision?
• Is the scope correct?
• Are things missing (eg. environment)?
• Is there overreaching?
• Look at arguments/concept/relationships
  individually as much as possible

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Dealing with data and models

• Is the data appropriate?
• Is there some other explanation for it?
• Is there another source of information?
• Measures are often linked (eg. income equals
  spending equals production)
• Is there background information?
• Was there sensitivity analysis done?
• For data or modelling results Do the figures
  make intuitive sense?

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Some examples

• Look at data presentation critically, ideally
  checking data source if you have doubts look at
• Length of time used
• Proportional vs. absolute
• Values on axes
• Example Female employment in 1984 (Aust Bureau
  of Statistics)

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1. Female employment as a percentage of the
total population
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2. Stretching the axis
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3. Absolute growth in female employment (same
data)
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4. Shifting previous graph forward by a month
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2. Some basic concepts
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One to rule them all

• Opportunity cost what you could have got with
  your money or resources (time, land, etc.)
• Comprehensive measure
• Is how economics differs to accounting

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How are decisions made?

• Whatever maximises (social) welfare
• Consists of
• (Economic) profit
• Utility
• Utilitatarian monetise how everyone is placed
  and add up

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Demand and supply

• Demand (schedule) total that people are willing
  to buy (marginal benefit) at each price
• Changed by
• Income
• Substitutes and complements
• Preferences
• Population
• Future prices

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Demand and supply

• Supply (schedule) total that people are willing
  to sell (marginal cost) at each price
• Changed by
• Technology
• Prices of inputs
• Prices of related goods
• Number of suppliers
• Expected future prices

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Related concepts

• Equilibrium
• Efficiency
• Public goods
• Externalities

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Other concepts

• Real vs. nominal
• Marginal vs. average
• Stock vs. flows
• Direct vs. indirect (multipliers)
• Now vs. future
• Interest rates, discount rates

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Sources of information

• Productivity Commission, www.pc.gov.au
• NSW Treasurys interstate comparison of taxes
• http//www.treasury.nsw.gov.au/indexes/pubs_by_pol
  .htm
• Australian Bureau of Statistics
• http//www.abs.gov.au and their helpline
• Reserve Bank of Australia
• http//www.rba.gov.au
• Budget papers

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Sources of information

• Window on Economics, www.ozprospect.org/window
• Melbourne University Econcochat, etc.
• http//www.economics.unimelb.edu.au/economics.htm
• Resources for Economists on the Internet (US)
• http//www.aeaweb.org/RFE/EconFAQ.html