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What is economics and what do economists do? - YouTube
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In this short introduction to the discipline of economics,
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Dr. Pete Schuhmann presents an overview of the
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fundamental issues of interest to economists and
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how they study those issues.
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He defines economics as the study of how people
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deal with scarcity and distribute scarce resources.
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He highlights the two broad branches of economics -
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macro and micro - and explains that macroeconomics
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focuses on the study of the entire economy at the
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national and international level while microeconomics looks at
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individual and firm level decision making and dynamics.
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He notes that economists use key concepts like opportunity
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cost to understand trade-offs and decision making
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and that questions of interest for economists arise by
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thinking at the margin.
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I have been given the task of talking about
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what is economics and what do economists do.
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ECON 101, the first five minutes of ECON 101.
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So there's the ECON 101 definition -
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economics is the study of how people, businesses,
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societies, or nations deal with scarcity.
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There's lots of definitions of economics.
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If you ask ten different economists what they do,
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they'd give you ten different answers, so my
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my favorite definition of economics is economics is what
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economists do and if we go back to the first slide,
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you'll see that I'm pretty much done.
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So I'll open it up for questions, no I'm just kidding.
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What do economists do?
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We study how people deal with scarcity,
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how we distribute resources.
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Who are these characters here?
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All the way on the left, that's Alfred Marshall,
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he's sort of the father of the supply and demand model,
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the market model, he wrote in the late 1800s;
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the guy in the middle that's Adam Smith late 1700s,
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he looked at rational self-interest and how
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rational self-interest sort of promotes social well -
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interests under a certain set of conditions;
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and who's that guy on the right?
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Milton Friedman, yes Milton Friedman,
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perhaps the 20th century's most vocal
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advocate for free markets.
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In the first day of econ or the second day of econ,
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most econ students are presented with a picture
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that looks like this, the so called circular flow.
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What do we have?
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We have households providing labor to businesses in
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exchange for incomes and wages,
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businesses in turn provide goods and services
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and households pay for those goods and services
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with dollars, right, so resources moving around
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in an economy, right, and everybody's motivated by incentives -
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workers have an incentive to do good work so
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they get high pay, businesses have incentives to
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provide quality products at low costs so that they
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earn profits, alright, but maybe there's something
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missing from that picture, right,
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where are the natural systems in this system?
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You can expand on the circular flow to include that up there.
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There's John Krutilla in the corner
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wondering if we should reconsider some of this.
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How do economists study all that stuff?
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Math, statistics, data, reasoning, alright,
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we use a lot of tools probably the same set of tools that
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most people in this room use, alright.
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Then what?
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Well we try to provide useful information,
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alright, useful information to decision-makers.
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We kind of live in the world of what ifs,
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right, what might happen if...?
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Or how do we get here?
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We look at cause and effect.
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Cost and benefits of an action or an inaction,
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what's the best way to accomplish a particular goal?
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We use theory and data and math,
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statistics to hopefully make the world a better place,
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help solve problems; that's what we do.
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Economics is supposed to be objective as we
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talked about a few minutes ago, alright,
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I like to think about it as a cold-hearted
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search for the truth.
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We don't come in typically as advocates,
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right, we're analysts, hopefully for the most part, alright.
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What are we advocating for?
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Good answers, really.
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I get this question often,
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is economics a science?
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I don't know honestly,
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yes and no.
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If you think about what Karl Popper said
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about economics, about science,
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science is the study of things that can be
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falsified, alright, and so, yeah,
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do we try and do that?
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Yes.
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Do we follow the scientific method?
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Yes, we make observations about the
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way the world works, try and think about
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the way the world works, theorize,
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collect data to test the theory,
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alright, and then revisit the theory
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based on the empirical results.
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Alright, so, but unlike some physical sciences,
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we don't have controlled experiments, right,
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just like ecosystems they're just really only one economy
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and it's hard to control everything together,
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so we don't have controlled experiments,
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it's messy, right, we have
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to use the facts that are given to us that are
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available when we try and use good math and good
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statistics to draw inference.
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Daniel Hausman's a philosophy professor at
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Wisconsin Madison, hope I didn't screw that up.
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He had an interview in the New York Times recently and
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he said and he philosophizes about things related to the
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economy, he said "the problems that we want economists
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to help solve are more like predicting how leaves will fall
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on a windy day than predicting how objects will fall
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in a vacuum." I like that, I like that analogy a lot, alright,
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it's messy; there's a lot of factors that play
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and we analyze a subset of those factors.
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We always going to get it right?
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No, we're not always going to get it right.
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So if economics is a science, it's an inexact one.
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So what can economists study?
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Anything that involves decision-making,
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anything that involves tradeoffs or choices,
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well pretty much anything, alright, pretty much anything.
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This is the Journal of Economic Literature Classification
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of Fields in economics, so if you can read the font, there's,
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we haven't used up all the letters if you go through,
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but we're getting close.
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I'm not sure what we're going to do when we
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run out of letters, but just to give you a sense of,
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you know, the discipline of economics is
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very broad and covers a lot of different topics.
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Where're we?
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We're in Q - ag and natural resource economics,
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environmental and ecological economics,
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and if we get to talk about the difference between
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environmental economics and ecological economics,
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it's an interesting topic that perhaps we can address
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sometime in the next few days.
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Alright, the two big branches, right,
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if all our disciplines are trees,
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you go back a hundred years or two hundred years
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in our study, we're all working on the trunk.
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As our disciplines evolve and as the state of knowledge
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improves, we're getting out into the leaves now,
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right, we're all, our thesis topics if you
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think about it, right,
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think about the title of your dissertation,
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it was probably really long and esoteric,
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very fine tuned topic.
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Well a long time ago, we looked at the big things,
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so the big branches in this tree of economics are macro
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and micro, right.
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Macroeconomics is the study of an entire economy.
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We look at broadly defined economic variables,
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none of us are macroeconomists,
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so we're not going to get a whole lot of this this week.
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I have friends who are macroeconomists and they
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concern themselves with forecasting.
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What's going to happen?
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What's going to happen to the
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regional economy in the next year?
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What's going to happen to the
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state economy in the next year?
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What's going to happen to the
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national economy in the next year?
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Unfortunately, this is what most people
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think about when they think about
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what an economist does.
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Some fields in macroeconomics, again monetary,
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international stuff.
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It's important to point out that,
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you know, we have all these fields
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in econ and there aren't well defined
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fences around these fields.
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We kind of flow into each other and the theory that
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you might use in one sub-discipline carries over and
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can be applied in other sub-disciplines
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like Sheila said a few minutes ago that the field of
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development economics has a lot of micro in it
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and it has a lot of macro in it as well.
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Microeconomics, a fine tuned look at the
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way people behave or interact, trade things.
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An analogy that I like,
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if the economy is a forest,
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and the macroeconomist is flying over the forest
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in an airplane, so getting a sense of the big-picture.
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What does the whole ecosystem look like?
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The microeconomist is walking through the forest
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looking at individual interactions between
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things in the forest, right.
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Micro fields, there are many,
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and again there's overlap here,
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what you see health, education,
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industrial organization, regional, labor,
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demographics - economists study all this stuff.
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What kind of skills do economists use?
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The same set of skills that you all use and
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I'm sure critical thinking, math, statistics,
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a lot of data analysis, a lot of technical software,
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and obviously writing and reporting,
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and communication are essential.
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Where do economists work?
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I don't remember where I got this figure, luckily it's vague.
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About half of all economists work for government,
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other areas are in the private sector -
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banking and investments, consulting, firms, NGOs,
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obviously academia.
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Is everyone that studies economics an economist?
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No, not by any stretch.
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One of the funny things about economics is that it's
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hard to do economics without graduate training
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because of the, perhaps because of the math,
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because of the statistical analysis that's involved.
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As undergraduates, you don't get to do economics
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perhaps until your senior year when you get into that
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econometrics course and we, you know,
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if we know students are going to go to graduate school,
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we push them to do that earlier on so they can start
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doing it and seeing what it's going to be like,
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but no there's lots of potential job opportunities for
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someone with an economics background, here are some.
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For an undergrad thinking about majoring in economics is
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as exciting and scary at the same time;
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there's not a defined career path for those that study
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economics, you can really go into a lot of different areas
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because of the skills that you have,
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the skill set that you develop when studying economics.
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Do economists agree on everything?
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No, definitely not.
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There's a lot of uncertainty, there's a lot of ambiguity,
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it's not a clear cut-and-dry type of science, so no.
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What do economists agree on?
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Well, surprisingly a lot.
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Just some general things here,
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and we'll get into a lot of the specifics
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during the course of the week,
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but okay we agree that public policy should
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be designed to improve the well-being of the public,
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we agree that people respond to incentives,
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we agree that voluntary transactions are good
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and we agree that analyzing the costs and benefits of
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actions and inaction gives us a lot of information about
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the way the world works and why we are where we are.
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You'll get a lot more on this as we go along.
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One of the most important concepts in econ,
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if you could grab ahold of two or three things,
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alright, and I think about this from teaching undergrads,
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I teach the first class, the ECON 101 course to
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250 or so students every semester,
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what do I want them to leave with?
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I know that most of them are not going to be
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economists, most of them are not going to be econ majors;
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I want them to understand the idea of opportunity cost,
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first and foremost; that's probably the biggest thing, right.
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What is that TiNSTaaFL?
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There is no such thing as a free lunch,
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that's what that means.
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That's the idea of opportunity cost,
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there's no such thing as a free lunch, right,
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even though it might not involve money out of your pocket,
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every action that you engage in involves
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some kind of opportunity cost, you're giving up something;
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this is because of scarce resources.
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What resources are scarce?
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All of them, right, our time, our energy,
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our incomes, our natural resources,
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all scarce, right, all limited in supply.
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Second most important concept I think,
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and Sheila and Jim might add to this or disagree,
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but being able to think at the margin,
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being able to think about change as
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being incremental, right, rather than absolute.
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