Macroeconomics

Module 1: Economic Foundations

Chapter 1: Limits, Alternatives, and Choices

1. The Economic Perspective: Learn to think like an economist! Economic opinions are
not a substitute for economic analysis. This course will prepare you to conduct your own
economic analysis and not rely on the “guidance” of media idiots or political clowns.

2. Economics may simply be defined as unlimited wants vs. limited availability of

resources.

3. Scarcity and Choice: The original plea, premise, and assumption are the scarcity of
economic resources, or the factors of production. Scarcity begets competition, which
begets choices, which begets trade-off, which begets opportunity costs, which begets
value.

4. The essence of free people is the simultaneous ability to think and to buy. Free people
“get along” quite well through voluntary exchange. In fact, democracies don’t usually
war against each other.

5. For most of mankind’s history, people have been under the tyrannical rule of either the
state or the church (religion). The American experiment is the only country founded on
the idea that man is born free. Voluntary slavery still exists in the United States.

6. Purposeful Behavior: People respond to incentives, even the enslaved. Free markets
allow people to respond to positive rewards for themselves and society, as well, i.e., self-
interest (Adam Smith). Self-government won’t work without self.

7. All markets are interdependent; no market can exist in isolation of other markets.

8. The reason someone voluntarily enters into an exchange is to maximize their behavior,
given their limited income (all people are limited by income, even Bill Gates). In other
words, people always get what they want, forming a 1:1 relationship. The President of the
United States has about a 1:300 million political relationship with citizens, even his wife.

9. Economics is a social science, since it is the study of human behavior:

a. Incentives
b. Optimization
c. Self-interest
d. Rationality Assumption

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 e. Marginal Analysis → MB > MC

10. Methodology: Economics is practiced, not memorized. Let the data drive your analysis,
to drive your conclusions (opinions backed with facts). Economic opinions are not a
substitute for economic analysis:
a. Inductive and deductive analysis
b. Correlation: X↔Y
c. Causation: X →Y
d. Positive vs. Normative
e. Bias
f. Terminology
g. Fallacy of Composition
h. Post-Hoc Fallacy
i. Ceteris Paribus
j. Empirical data analysis
k. Subjective vs. Objective analysis

11. Macroeconomics vs. Microeconomics

12. The Economizing Problem: Scarcity vs. Wants

a. For individuals
b. For society
c. Adulthood is based on the word “no”. Capitalism is built on the word “no”.
Wealth is built on the word “no”. Childhood is instant gratification without
any consideration of others or choices you face.

13. Factors of Production (compensation):

a. Land (rent)
b. Labor (wages and salaries)
c. Capital (interest)
d. Management (profit: profit is a result; greed is an attitude)

14. Production Possibilities Model

a. Assumptions
b. Increasing opportunity costs
c. Optimal allocation
d. Unemployed resources
e. Growth
f. Increased supply of resources
g. Advances in technology (Technology is applied knowledge, not something
that was invented by the Pentagon to “kill people.”)
h. Trade
i. Economic growth