EC 201 Dr. Bresnock Lecture 1
EC 201
Cal Poly Pomona
Dr. Bresnock
Lecture 1
What is Economics? Here are a couple of definitions.
It is a social science concerned with the efficient use of limited, or scarce, resources to achieve maximum satisfaction of human material wants. (typical texts)
It is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future among various persons and groups in society. (Samuelson)
An analysis of choice making. (Bresnock)
Fundamental Economic Problem
Unlimited Wants vs Limited Resources
Demands > Supplies Scarcities
Consumer Decision – maximizing satisfaction given their limited income, or budget.
Producer Decision – maximizing profit given their limited resources.
Government Decision – maximizing net benefits to society given limited budgets.
Private Sector = Consumers + Producers
+ Public Sector = All Levels of Government
Mixed Market Economy , i.e. U.S.
Types of Economies
Transitional Economies – Eastern Europe, China
Pure Market Pure Command
(Capitalism) (Communism)
Hong Kong, Singapore, Australia, North Korea, Zimbabwe, Cuba,
Ireland, New Zealand, U.S, Canada, Myanmar (Burma), Eritrea,
Denmark, Switzerland, U.K. Venezuela, Congo, Libya
Pure Market – private property rights and decentralized decision making coordinated through markets. Pure Command – state ownership and control of economic resources and central planning.
Resources – also known as inputs. An input is also referred to as a “factor of production” if it earns income over and over again, i.e. labor and capital equipment are used repeatedly in production whereas other inputs, i.e. electricity, cloth, are used only once.
I. Human Resources
A. Labor – many types. See “occupational triangle” below. Notice that there are more plentiful workers in the unskilled category. Consequently the wage for those workers will be quite low. At the top of the triangle there are far fewer workers in the “G” (short for genius or someone with unique talents), and such persons receive rather high salaries. “M & P” represents managers and other professional persons.
Note also that the Human Capital of the workers increases greatly as the workers move higher on the occupational triangle. Human capital is a measure of the workers education, training and skills.
B. Entrepreneur – creative genius, the person or persons who put together all of the production inputs and produce a marketable product.
II. Non-Human Resources
A. Capital – tools, equipment, aka “investment goods”. Not stocks and bonds (which are financial capital), and not money. (Financial resources are used to purchase physical productive inputs; they are a medium of exchange not a productive input.)
B. Land -- “Natural Capital”. Environmental and natural resource endowment, i.e. air and water resources, forests, fish, minerals and materials, energy resources, species, agricultural products, land.
Consumer Goods and Services
1. Durable Goods – i.e. TVs, cars, washing machines, refrigerators, stoves, furniture; relatively stable expenditure pattern over last 70 years.
2. Non-Durable Goods – i.e. food, clothing, small appliances, cleaning products, footwear, beverages; decrease in expenditure pattern over last 70 years.
3. Services – i.e. dental work, manicures, car repairs, child care, health care, laundering, home repairs; increase in expenditure pattern over last 70 years.
Public Goods and Services
1. Pure Public –goods and services only produced by government, i.e. national defense, lighthouses,
2. Quasi-Public -- goods and services produced in part by government and in part by the private sector, i.e. education, housing, medical care,
Key Microeconomic Questions
1. What to Produce? How are finite resources allocated to satisfy infinite societal wants/demands? Choices made by consumers, firms, and government. These choices are constrained by either limited monetary budgets or physical resources.
2. How to Produce? Efficiency goal. The way the market economy manages to use the power of self-interest for the good of society (aka “invisible hand concept”
A. Productive, or Technical Efficiency – achievement of maximum output with full usage of all inputs at lowest production cost. Focuses on physical efficiency.
B. Allocative Efficiency – production of the combination of goods and services that people prefer given their income. Focuses on market analysis. Goods and services are produced up to the point where the marginal benefit to consumers is equal to the marginal cost of producing them.
3. How to Distribute? Equity, or fairness, goal. But who determines what is fair? Distribution of goods and services depends on the distribution of income. Those with more income receive a larger share of goods and services in general.
Positive vs. Normative Analysis
Factual Subjective
What is, What should
Was, or will be or ought to be
Empirical analysis Intrusion of value judgment
Micro vs. Macroeconomics
Microeconomics analyses the behavior of specific economic units, i.e. how does an individual consumer decide how to spend his/her income, how does a business firm determine what to produce.
Macroeconomics analyzes the behavior of an entire economic system, i.e. aggregate economic analysis, study of U.S. economy as a whole
Key Macroeconomic Issues
A. Stable Prices – low inflation
B. Full Employment – low unemployment
C. Sustainable Economic Growth – that is consistent with low inflation and low unemployment
(Real GDP on vertical axis in %)
Unemployment (vertical axis in %) appears below.
Unemployment Data
Data on unemployment rates from the BLS for August 2010, 2012, 2013, 2014 and 2016, provided the following data for the top and bottom states ranked by unemployment rate.
Top 5 2010 2012 2013 2014 2016 Bottom 5 2010 2012 2013 2014 2016
Nevada 14.4% 12.7% 9.5% 8.5% 6.5% North Dakota 3.7% 3.2% 3.0% 2.6% 3.1%
Michigan 13.1% 9.0% 9.0% 7.7% 4.5% South Dakota 4.5% 4.2% 3.8% 3.6% 2.8%
California 12.4% 10.9% 8.9% 8.0% 5.5% Nebraska 4.6% 4.0% 4.2% 3.6% 3.1%
Rhode Island 11.8% 10.9% 9.1% 9.0% 5.5% New Hampshire 5.7% 5.2% 5.0% 4.7% 2.9%
Florida 11.7% 4.7% Vermont 6.0% 5.0% 4.6% 3.7% 3.2%
D.C. 9.9% 9.9% 8.7% 7.4% 5.9% Wyoming 4.6% 4.2% 5.7%
Illinois 9.2% 8.7% 5.8% Hawaii 4.3% 4.6% 3.5%
Kentucky 7.8% 4.9% Iowa 4.4% 4.1%
Mississippi 7.4% 6.0% Louisiana 4.5% 6.3%
Alaska 6.7% Utah 3.9% 3.9%
The top 10 unemployment rates for metro areas (BLS, 2010, 2012, 2013, and 2016) are:
2010 2012 2013 2016 2010 2012 2013 2016
El Centro, CA 30.3% 26.4% 26.1% 23.7% Stockton, CA 17.4% 16.6% 12.8% 8.3%
Yuma, AZ 28.7% 24.5% 34.5% 22.2% Visalia-Porterville, CA 16.9% 17.3% 13.8% 10.8%
Yuba City, CA 19.0% 18.8% 14.0% 9.4% Fresno, CA 16.2% 16.9% 12.5% 9.4%
Merced, CA 18.9% 19.5% 14.6% 10.6% Chico, CA 16.0% 13.7% 10.8% 7.2%
Modesto, CA 17.6% 16.9% 12.9% 9.2% Bakersfield-Delano, CA 16.0% 15.0% 11.6% 10.8%
Hanlon-Corcoran, CA 16.9% 12.6% 10.2%
Madera, CA 9.4%
much further down the list are:
2010 2012 2013 2016
Riverside-San Bernardino-Ontario, CA 15.1% 12.4% 11.0% 6.6%
Las Vegas-Paradise, NV 14.8% 13.1% 9.7% 6.9%
LA-Long Beach-Santa Ana, CA 12.5% 11.0% 9.8% 5.0%
Oxnard-Thousand Oaks-Ventura, CA 11.3% 9.7% 8.0% 5.4%
SF-Oakland-Fremont, CA 10.8 % 8.7% 6.9% 4.2%
San Diego-Carlsbad-San Marcos, CA 10.8% 9.3% 7.8% 5.1%
San Jose-Sunnyvale-Santa Clara, CA 7.2% 4.1%
Santa Rosa-Petaluma, CA 7.1% 4.2%
San Luis Obispo–Paso Robles, CA 6.9% 4.5%
County Unemployment from the CA Employment Development Department (EDD) appears below as of August 2010, 2012, 2013, 2016 and 2017. (See: http://www.edd.ca.gov/ ) (Note: EDD also reports on fastest growing jobs by occupation. Type “fastest growing jobs in CA” into their search box).
2010 2012 2013 2016 2017
Los Angeles 13.0% 12.1% 10.1% 5.5% 4.5%
Orange 9.6% 8.0% 6.2% 4.6% 3.8%
Ventura 11.2% 9.6% 7.8% 5.8% 4.5%
San Bernardino 14.2% 12.3% 10.4% 6.7% 5.4%
Riverside 15.3% 12.6% 10.4% 7.1% 5.7%
San Diego 10.6% 9.3% 7.4% 5.3% 4.3%
(Also see the attached figure and link that gives recent trends in California and U.S. unemployment rates up to June 2017.)
Go to:
http://www.labormarketinfo.edd.ca.gov/Publications/Labor-Market-Analysis/calmr.pdf
This site updates the data above through June 2017. As of June 2017 the CA unemployment rate was 4.7% while the U.S. unemployment rate was at 4.4%.
The following tables give rankings of full-time average annual earnings for the top ranked occupations in selected years. For some more recent data see:
http://www.bls.gov/ooh/highest-paying.htm
http://www.bls.gov/emp/ep_table_104.htm
Table 1. Twelve high-paying full-time(1) occupations that were ranked in the top 20 in 1997 and 2005, percent change in earnings, National Compensation Survey /Occupation (1997 data) / 1997 ranking / Occupation (2005 data) / 2005 ranking / 2005 data / Percent change 1997-2005 /
Hourly earnings(2) / Mean weekly hours /
Mean / Relative error(3) /
Airplane pilots and navigators / 1 / Airplane pilots and navigators / 1 / $97.51 / 13.0 / 23.5 / 51.3
Law teachers / 2 / Economics teachers / 2 / 66.23 / 19.2 / 42.8 / 30.4
Chief executives and general administrators, public administration / 3 / Judges / 3 / 61.38 / 11.1 / 39.8 / 44.0
Economics teachers / 4 / Physicians / 4 / 61.34 / 11.0 / 41.9 / 63.6
Judges / 6 / Agriculture and forestry teachers / 6 / 55.12 / 23.5 / 34.6 / 31.4
Agriculture and forestry teachers / 7 / Law teachers / 7 / 55.10 / 15.3 / 38.9 / -6.1
Physics teachers / 8 / Physics teachers / 8 / 53.20 / 8.5 / 38.7 / 31.7
Medical science teachers / 11 / Chief executives and general administrators, public administration / 10 / 52.11 / 6.3 / 42.8 / 1.9
Physicians / 12 / Medical science teachers / 11 / 51.79 / 10.2 / 45.7 / 34.4
Dentists / 14 / Lawyers / 12 / 50.89 / 4.9 / 41.5 / 46.8
Managers, marketing, advertising, and public relations / 18 / Dentists / 14 / 46.30 / 11.0 / 41.3 / 26.1
Lawyers / 19 / Managers, marketing, advertising, and public relations / 17 / 45.33 / 4.2 / 41.2 / 30.0
Source: Changes in Occupational Ranking and Hourly Earnings, 1997-2005
by John E. Buckley, Bureau of Labor Statistics, August 29, 2007.
The table on the next page appears in "Ranking of Full-time Civilian Occupations by Hourly and Annual Earnings, July 2009 by John E. Buckley (Bureau of Labor Statistics, p. 2) and gives the top ranked occupations by annual earnings for 2009. This report also includes the rankings of the bottom occupations.
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EC 201 Dr. Bresnock Lecture 1
Hourly Earnings Rank (4) / Annual Earnings Rank (4) / Occupation / Annual Earnings (Mean) / Average Annual Hours3 / 1 / Obstetricians and gynecologists / $279,635 / 2,637
1 / 2 / Anesthesiologists / 271,264 / 2,400
6 / 3 / Chief executives / 192,780 / 2,271
5 / 4 / Internists, general / 181,081 / 2,009
4 / 6 / Law teachers, postsecondary / 152,540 / 2,119
8 / 7 / Psychiatrists / 149,866 / 1,981
9 / 8 / Dentists, general / 145,458 / 2,049
18 / 9 / Pediatricians, general / 126,955 / 2,240
2 / 10 / Airline pilots, copilots, and flight engineers / 125,431 / 1,110
10 / 11 / Health specialties teachers, postsecondary / 124,357 / 1,805
15 / 12 / Engineering managers / 120,429 / 2,117
20 / 13 / Lawyers / 118,241 / 2,123
26 / 14 / Economists / 114,498 / 2,145
24 / 15 / Computer and Info. system managers / 114,064 / 2,089
23 / 16 / Securities, commodities, and financial services sales agents / 114,064 / 2,089
25 / 17 / Computer and information scientits, research / 113,901 / 2,106
17 / 18 / Physicists / 113,817 / 2,007
16 / 19 / Judges, magistrate judges, and magistrates / 109,842 / 1,935
27 / 20 / Petroleum engineers / 109,635 / 2,074
ECON A170 Dr. Bresnock
Lecture 1
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