S- 01 - Economics 11 - Markets and the State

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Nov. 10, 2010 Econ. 11 - Introduction 1

Lecture #1 INTRODUCTION –

The course – ECONOMICS 11: “Market and the State”“An introduction to Economics

and the role that government plays in the economy”


Lecture #1 INTRODUCTION –

MY NAME – GERARDO SICATLectures – two hours a week. Third hour – discussion group

section led by a Teaching Fellow.The reading list – To be distributed,

with a lot of announcements


PRELIMINARIES

THE WORD “MARKET” REFERS TO TRANSACTIONS BETWEEN

BUYERS (users, demanders) AND SELLERS (providers, suppliers).

Buyers and sellers are “economic agents.”

THE STUDY OF MARKETS IS THE SUBJECT OF “ECONOMICS.”

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PRELIMINARIES

“THE STATE” IS ABOUT THE ROLE

OF THE GOVERNMENT IN THE ECONOMY.


PRELIMINARIES

THE TITLE “MARKETS AND THE STATE”REFERS TO THE

INTERACTION OF ECONOMICS WITH THE

GOVERNMENT.


PRELIMINARIES

IT IS POSSIBLE TO START THE STUDY OF THE COURSE WITH ANY

SUBJECT THAT APPEARS INTERESTING AND AT

RANDOM!

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“ECONOMIC” PROBLEMS

DEFINITION OF THE PROBLEM IMPLIES AN OBJECTIVE IS INVOLVEDATTAINING THE OBJECTIVE IMPLIES RELATIONSHIP BETWEEN “ACTUAL RESOURCES” AVAILABLE TO ATTAIN THE OBJECTIVESOLUTION OF THE PROBLEM ULTIMATELY INVOLVES DECISIONS MEASURED IN TERMS OF “PRICES” AND “QUANTITIES”


“ECONOMIC” PROBLEMS –TYPES

AT HOUSEHOLD OR INDIVIDUAL LEVELAT GROUP LEVELo COMMUNITY (LOCAL)o INDUSTRY o REGIONALAT NATIONAL LEVELAT INTERNATIONAL LEVEL


ONE RECENT SEMESTER, THE FIRST LECTURE I GAVE WAS ABOUT THIS MAN!

MANNY PACQUIAO!

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LAST SEMESTER, I USED THE

THE SPELLING BEE CONTEST!

AS THE TOPIC TO ILLUSTRATE AN ECONOMIC

PROBLEM.


THE 83RD NATIONAL SPELLING BEE CONTEST IN THE US

THE PARTICI-PANTS WERE 11-14 YEAR OLD STUDENTS FROM ALL THE U.S.A.


THE WINNER WAS THIS YOUNG PERSON ==Anamika Veeramani, 14, of Ohio State USA.

She is from India, the parents are probablyimmigrants to the US. She is a natural born American by birth.

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WORDS SPELLED USED IN FINAL ROUND

• confiserie• netsuke • leishmanic• gnocchi • infundibuliform• epiphysis • tailleur• aguinaldo• terribilita• rhytidome• ochidore• juvia• stromuhr

• WORDS SPELLED BEFORE THE FINAL ROUND

• schlieren• nahcolite• soubresaut• gyokuro• engysseismology• mauka


CONTEST RULES• BEST CONTESTANTS FROM DIFFERENT

STATES (REGIONAL ELIMINATION)• THE SPELLING BEE AT NATIONAL

LEVEL BEGAN WITH 273 CONTESTANTS CONTESTANTS APPEAR MORE REPRESENTATIVE OF AMERICAN

POPULATION AT THIS LEVEL

• DEGREE OF DIFFICULTY OF ROUNDS OF SPELLING LED TO 10 FINALISTS


NAMES OF 10 FINALISTS & THEIR ETHNIC ORIGIN

• Joanna Ye (Asian)• Juliana Canabal-

Rodriguez (Latino)• Aditya Chamudupathy

(Asian)• Andrew Grose

(American)• Laura Newcombe

(Chinese mother?)

• Adrian Gunawan(Asian)

• Laura Tang (Asian)• Elizabeth Platz

(American)• Shanta Srivatsa

(Asian)• Anamika Veeramani

(Asian)

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INTERPRETING THIS SPELLING BEE CONTEST FROM THE VIEWPOINT

OF THE STUDY OF

ECONOMICS


ECONOMICS IS ABOUT• SCARCE RESOURCES (TIME, BUDGET,

INCOME, WEALTH, HELP)• CHOICES OF WHAT TO DO, WHAT TO

MAKE, WHAT TO USE TO SATISFY HUMAN WANTS

• MECHANISMS OF ARRIVING AT THESE CHOICES (MARKETS, POWER, VOTING)

• RULES OF BEHAVIOR THAT GOVERN THESE CHOICES (INSTITUTIONS, GOVERNMENT LAWS, CUSTOMS)


SCARCE RESOURCES (TIME, BUDGET, INCOME, WEALTH, HELP) –

SPELLING BEE CONTESTANT’S VIEWPOINT

• INHERITED TALENT – GENE (DNA) POOL COULD BE EXCEPTIONAL

• FAMILY SUPPORT – PARENT’S TIME & ABILITIES

• COMMUNITY SUPPORT – SCHOOL TEACHERS, PROGRAMS, ETC.

• TIME – PRACTICAL USE OF TIME • EFFORT – PRACTICE, PRACTICE, STUDY,

STUDY

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CHOICES OF WHAT TO DO, WHAT TO MAKE, WHAT TO USE TO SATISFY

HUMAN WANTS

• (Contestant): STUDY OTHER SUBJECTS, PLAY, NOT PARTICIPATE, ETC.

• (Organizer): SCIENCE CONTEST, STUDENT FAIRS, SPORTS COMPETITION, ETC.


MECHANISMS OF ARRIVING AT THESE CHOICES (MARKETS, POWER,

VOTING)

• MARKETS – Interactions among Buyers and Sellers; Users and Suppliers; Participants and Watchers– “CONTESTABLE” MARKETS –

Competition, fair rules, no use of “unfair”power exercised

– “ADMINISTERED” MARKETS – Choice is predetermined, rules could be biased, some “monopoly power” exercised, “crony” choices


RULES OF BEHAVIOR THAT GOVERN THESE CHOICES (INSTITUTIONS, GOVERNMENT LAWS, CUSTOMS)

• DETERMINED RULES BY SOCIETY –Laws & political constitution, institutional rules – customary and adopted practice

• SPELLING BEE CONTEST RULES –Developed by the organizers to determine success & failure in spelling the word chosen for the contestant

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SPELLING BEE CONTEST OUTCOME - FACTORS

• RULES ENABLED ELIMINATION OF THE LEAST ABLE AMONG CONTESTANTS UNTIL A CHAMPION WAS CHOSEN

• AT THE HIGHEST LEVEL OF CHOICE – AND EVEN IN INTERMEDIARY STEPS –IMPORTANCE OF THE “LUCK OF THE DRAW” – THE WORD CHOSEN FOR THE PARTICIPANT


IN ECONOMICS, RISK & UNCERTAINTY PLAY AN IMPORTANT

ROLE IN THE MARKET OUTCOME

“LUCK OF THE DRAW”“BAD LUCK”

“GOOD LUCK”RISK

UNCERTAINTY


WHAT ATTRACTED ME ABOUT THIS CONTEST IN USING IT

AS AN EXAMPLE FOR THIS LECTURE

• IT DEMONSTRATES AN ASPECT OF WHY AMERICA IS THE MOST POWERFUL COUNTRY IN THE WORLD – ECONOMICALLY– INSTITUTIONAL RULES– CONTESTABILITY OF

MARKETS

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AMERICAN “INSTITUTIONS”:

• POLITICAL CONSTITUTION (SUPREME LAW OF THE LAND) – FRAMED IN 1781 –VERY SIMPLE: – DEFINED ONLY THE GOVERNMENT –– NO RULES ABOUT ECONOMIC ISSUES EXCEPT

TO ALLOW FREE TRADE AMONG STATES• MOST MARKETS ARE “CONSTESTABLE”

– A LOT OF COMPETITION IN ECONOMIC MARKETS (INDUSTRY, CAPITAL, LABOR, TECHNOLOGY)


RELEVANCE TO THE SPELLING BEE EXAMPLE - #1

• IN THE 83 YEARS OF THE SPELLING BEE CONTEST, 41 BOYS AND 44 GIRLS WON THE CONTEST– GIRLS AND BOYS HAVE EQUAL

OPPORTUNITIES – DOES THIS REFLECT SOCIAL &

ECONOMIC EQUALITY AMONG SEXES?



• RECENT WINNERS OF THE CONTEST HAVE COME FROM ETHNIC GROUPS OTHER THAN “TRADITIONAL AMERICAN”– CONTEST IS OPEN TO ALL WHO KNOW

THE SUBJECT– EQUALITY OF OPPORTUNITY MEANS

THAT THE CONTEST IS COMPETITIVE OR CONTESTABLE!

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• “SPELLING BEE CONTEST” IS ONLY A VERY TINY ASPECT OF AMERICAN SOCIETY & ECONOMY

• IT DEMONSTRATES THAT IT IS AN “OPEN” ECONOMY – COMPETITIVE IN– INDUSTRY– CAPITAL AND TECHNOLOGY– LABOR MARKET


CONSIDER THESE PROPOSITIONS (STATEMENTS)

ABOUT THE PHILIPPINE ECONOMY:

• FOR DECADES, IT WAS HIGHLY PROTECTED AND SHIELDED FROM COMPETITION

• WHAT THE ECONOMY NEEDS TO BECOME BETTER IS GREATER “OPENNESS” TO TRADE AND TO COMPETITION

• RESTRICTIVE LAWS NEED TO BE REFORMED TO PERMIT MORE COMPETITION AND EFFICIENT GROWTH


End of today’s lecture.

Lecture #1Good day!

☺

S- 01 - Economics 11 - Markets and the State

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