ECO 212 – Principles of

Macroeconomics
Lecture 1 -
 COURSE OUTLINE
• All course material will be placed on
Blackboard.

• UPCOMING DUE DATES

– Assignment 1 - Friday, July 3, 2020
– Test 1 - Friday, July 10, 2020
– Assignment 2 - Friday, July 17, 2020
– Test 2 - Friday, July 24, 2020
– Final - Friday, Aug 3, 2020
 GENERAL EXPECTATIONS
• Punctuality

• Participation

• Open line of communication

• Zoom Etiquette (phones off; no distractions; be

FULLY CLOTHED)
TEXTBOOK

Chapter 1

The Principles and

Practice of
Economics
 Learning Objectives
1.1 The Scope of Economics

1.2 Three Principles of Economics

1.3 The First Principle of Economics: Optimization

1.4 The Second Principle of Economics: Equilibrium

1.5 The Third Principle of Economics: Empiricism

1.6 Is Economics Good for You?

1.1 The Scope of Economics
What is Economics?
 Economic Analysis
• Positive – claims to
describe the world as is
(descriptive)

• Normative – claims that

attempt to prescribe how
the world should be.
(advisory)
 ACTIVE LEARNING
Which of the following statements are
“positive” and which are “normative”? How
can you tell the difference?
a)There is a positive relationship between annihilating stay-at-home
orders and the number of COVID cases.
b)The government should enforce strict regulation for each state’s PPE
supply.
c)Social unrest follows long periods of unchecked systematic
inequality.
d)Students should make the most of their college experience.
ACTIVE LEARNING (Solutions)
a) There is a positive relationship between annihilating stay-at-home
orders and the number of COVID cases.
Positive, describes a relationship, could use data to confirm or
refute. (eg. Correia et. al (2020))
b) The government should enforce strict regulation for each state’s
PPE supply.
Normative, this is a value judgement.
c) Social unrest will follow long periods of unchecked systematic
inequality.
Positive, describes a relationship.
d) Students should make the most of their college experience.
Normative. Another speculatory value judgement
MICRO v. MACRO
1.2 THREE PRINCIPLES OF ECONOMICS

1) Optimization – making the best choice possible

with the information available, i.e. the most feasible
option.

2) Equilibrium – where no agent would benefit

personally by changing his or her own behavior.

3) Empiricism – using data to figure out answers to

interesting questions (empirical/evidence-based analysis)
 1.3 THE FIRST PRINCIPLE:
OPTIMIZATION
• Trade-offs?
- when some benefits must be
given up to attain others.

• Budget constraints?
- quantify trade-offs
 1.3 THE FIRST PRINCIPLE:
OPTIMIZATION
• Opportunity Cost?
- the best alternative
use of a resource.

• Cost Benefit Analysis?

– Used to identify the best
alternative, i.e. the option
with the greatest net benefit.
 1.3 THE FIRST PRINCIPLE:
OPTIMIZATION
ACTIVE LEARNING 2
Suppose you and your friends want to travel to Illinois to indulge in the
horticultural tourism. One friend argues that you should drive, because
splitting the cost of a rental car and gas will “only cost $200 each and is
better than a $300 plane ticket”. If the road trip takes 50 hours driving
time, and the flight is 10 hours, and your opportunity cost of time is $10
per hour, what is:

1)The benefit in out of pocket costs

2)The cost of additional driving time
3)The net benefit of driving vs flying
 1.3 THE SECOND PRINCIPLE:
EQUILIBRIUM
• A situation in which no-one benefits by changing his/her
behavior.

• Free-Rider Problem
-when people’s private
benefits are out of sync
with public interest.
(eg. Group work)
 1.3 THE THIRD PRINCIPLE:
EMPIRICISM
• Scientific Method
– observe a phenomenon,
– make simplifying assumptions and formulate
a hypothesis,
– generate predictions,
– test the hypothesis.
1.5 IS ECONOMICS GOOD FOR
YOU?
1.5 IS ECONOMICS GOOD FOR
YOU?

What are the costs and benefits of this

course?
1.5 IS ECONOMICS GOOD FOR
YOU?
 QUESTIONS
1)  In  economics,  scarcity  refers  to  the  situation  of  ________.  
A)  making  the  best  use  of  limited  information  
B)  having  more  wants  than  the  amount  of  available  resources  
C)  the  government  rationing  available  goods  and  services  
D)  sellers  setting  the  prices  of  their  products  too  high  for  people  to  be  
able  to afford  them
 
2)  Economics  is  primarily  the  study  of  ________.    
A)  the  mental  functions  and  behavior  of  individuals  and  groups  
B)  the  state,  nation,  government,  and  politics  and  policies  of  government
  C)  the  problems  related  to  the  existence  and  evolution  of  society  
D)  how  agents  choose  to  allocate  scarce  resources  and  how  these  
choices  affect society  
 QUESTIONS
3)  Which  of  the  following  statements  correctly  differentiates  between  positive  and   normative  
economics?  
A)  Positive  economics  is  descriptive,  whereas  normative  economics  is  
advisory.  
B)  Positive  economics  describes  what  people  ought  to  do,  whereas  
normative economics  describes  what   people  actually  do.  
C)  Positive  economics  is  based  on  judgments,  whereas  normative  
economics  is  not.  
D)  Positive  economics  can  only  be  applied  to  microeconomics,  whereas   normative
economics  can  be   applied  to  both  microeconomics  
and  macroeconomics.  
 
4)  The  relationship  between  the  unemployment  rate  and  inflation  is  studied under
 ________.  
A)  microeconomics  
B)  macroeconomics  
C)  behavioral  economics  
D)  international economics  
 QUESTIONS
5)  Which  of  the  following  is  NOT  a  key  principle  of  economics?  
A)  Optimization  
B)  Equilibrium  
C)  Empiricism  
D)  Substitution  
 
6)  If  a  particular  choice  that  an  individual  faces  gives  him  a  benefit  of  $20  but  
costs  $30,  the  net  benefit   from  making  this  choice  equals  ________.  
A)  $20  
B)  $10  
C)  −$10  
D)  −$30  
 QUESTIONS
7)  Each  member  in  a  group  might  do  what's  best  for  himself  or  herself  instead  
of behaving  in  a  way  that   optimizes  the  well‑being  of  the  entire  group.  
This  gives  rise  to  the  problem  of  ________.  
A)  Pareto  inefficiency    
B)  free  riding    
C)  irrational  behavior    
D)  disequilibrium
 
8)  Which  of  the  following  statements  is  true?  
A)  Testing  with  data  is  essential  to  developing  a  good  theory.  
B)  The  knowledge  of  economics  complicates  decision  making.    
C)  Cost‑benefit  analysis can  be  applied  only  to  limited  economic  
decisions.  
D)  Economics  is  more  of  a  theoretical  subject  with  limited  applications  in
 the  real world.