Università degli Studi di Torino Dipartimento di Studi Umanistici Corso di Laurea in Scienze della Comunicazione Anno accademico 2017/2018

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1 Università degli Studi di Torino Dipartimento di Studi Umanistici Corso di Laurea in Scienze della Comunicazione Anno accademico 2017/2018 Macroeconomia B (L-Z) Docente: Alessandro Stanchi

2 The course: : some preliminary Lectures sequence: details 1 academic hour = 45 real life minutes (=0,75 r.l. hours). Therefore,, 2.5 a.h.. = 3 r.l.h.,, and so on; topics; in-class exercises; questions and hoffice hours,, in the last 20 minutes of every lecture. Attendance: discrectionary (=NON OBBLIGATORIA, se previsto dal regolamento del corso di studi).

3 The course: : some preliminary details Materials: : on the course site. Exam: exercise(s), and potentially multiple-choice questions (same as Prof. Sau s rules). registration rules. alessandro.stanchi@unito.it Office hours: : right after lectures,, or booking a meeting by .

4 Il corso: notizie pratiche Orari: mercoledì 8/11, 15/11, 22/11, 29/11, 6/12, 13/12, 20/12, dalle 16 alle 19. giovedì 30/11, 7/12, 14/12, 21/12, dalle 10 alle 13. 4

5 Suggested readings: textbooks R. Dornbush, S. Fischer, R. Startz, G. Canullo, P. Pettenati, Macroeconomia, McGraw-Hill Education, 11 edizione, ISBN , ISBN , Di utile consultazione: O.J. Blanchard, A. Amighini, F. Giavazzi, Macroeconomia. Una prospettiva europea, Il Mulino, ISBN , ISBN , Lieberman Marc, Hall Robert, Principi di Economia, Apogeo Education, Milano, ultima edizione. Samuelson Paul A., Nordhaus William D., Bollino Carlo A., Economia, McGraw-Hill Education, ultima edizione.

6 0. Some Math refresh 6

7 How Graphs Work Two-Variable Graphs A quantity that can take on more than one value is called a variable. The line along which values of the x-variable are measured is called the horizontal axis or x-axis. The line along which values of the y- variable are measured is called the vertical axis ory-axis. The point where the axes of a two-variable graph meet is the origin. A causal relationship exists between two variables when the value taken by one variable directly influences or determines the value taken by the other variable. In a causal relationship, the determining variable is called the independent variable; the variable it determines is called the dependent variable. 7

8 How Graphs Work Two-Variable Graphs 8

9 How Graphs Work Curves on a Graph 9

10 How Graphs Work Curves on a Graph A curve is a line on a graph that depicts a relationship between two variables. It may be either a straight line or a curved line. If the curve is a straight line, the variables have a linear relationship. If the curve is not a straight line, the variables have a nonlinear relationship. 10

11 How Graphs Work Curves on a Graph Two variables have a positive relationship when an increase in the value of one variable is associated with an increase in the value of the other variable. It is illustrated by a curve that slopes upward from left to right. Two variables have a negative relationship when an increase in the value of one variable is associated with a decrease in the value of the other variable. It is illustrated by a curve that slopes downward from left to right. The horizontal intercept of a curve is the point at which it hits the horizontal axis; it indicates the value of the x- variable when the value of the y-variable is zero. The vertical intercept of a curve is the point at which it hits the vertical axis; it shows the value of the y-variable when the value of the x-variable is zero. 11

12 A Key Concept: The Slope of a Curve The slope of a line or curve is a measure of how steep it is. The slope of a line is measured by rise over run the change in the y-variable between two points on the line divided by the change in the x-variable between those same two points. The Slope of a Linear Curve Change in Change in y x y = x = Slope 12

13 A Key Concept: The Slope of a Curve The Slope of a Linear Curve 13

14 A Key Concept: The Slope of a Curve Horizontal and Vertical Curves and Their Slopes When a curve is horizontal, the value of y along that curve never changes it is constant. The slope of a horizontal curve is always zero. If a curve is vertical, the value of x along the curve never changes it is constant. The slope of a vertical line is equal to infinity. A vertical or a horizontal curve has a special implication: it means that the x-variable and the y- variable are unrelated. 14

15 A Key Concept: The Slope of a Curve The Slope of a Nonlinear Curve A nonlinear curve is one in which the slope is not the same between every pair of points. The absolute value of a negative number is the value of the negative number without the minus sign. 15

16 A Key Concept: The Slope of a Curve The Slope of a Nonlinear Curve 16

17 A Key Concept: The Slope of a Curve The Slope of a Nonlinear Curve 17

18 A Key Concept: The Slope of a Curve Calculating the Slope Along a Nonlinear Curve To calculate the slope along a nonlinear curve, you draw a straight line between two points of the curve. The slope of that straight line is a measure of the average slope of the curve between those two endpoints. 18

19 A Key Concept: The Slope of a Curve Maximum and Minimum Points A nonlinear curve may have a maximum point, the highest point along the curve. At the maximum, the slope of the curve changes from positive to negative. A nonlinear curve may have a minimum point, the lowest point along the curve. At the minimum, the slope of the curve changes from negative to positive. 19

20 20

21 A Key Concept: The Slope of a Curve Maximum and Minimum Points 21

22 1.1 What is Economics?... Reference: any basic Economics textbook 22

23 Economics Economics is a social science that attempts to explain the choices people make, when faced with unlimited desires but limited abilities and resources. Economics describes the factors that have influence over the production, distribution and consumption of goods and services. 23

24 Etymology The term economics comes from the Ancient Greek: οἰκονομία,, from οἶκος (oikos, "house") and νόμος (nomos,, "custom" or "law"), hence "rules (for the good management) of the house". Political economy was the earlier name for the subject, but economists in the late 19th century suggested "economics" as a shorter term for "economic science" to establish itself as a separate discipline outside of political science and other social sciences

25 The field of study Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics examines the behaviour of basic elements in the economy, including individual agents and markets,, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labour, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies). 25

26 THE ECONOMIC WAY OF THINKING Economic Models economic model A simplified representation of an economic environment, often employing a graph. Use Assumptions to Simplify Economists use assumptions to make things simpler and focus attention on what really matters. Isolate Variables Ceteris Paribus Economic analysis often involves variables and how they affect one another. variable A measure of something that can take on different values. ceteris paribus A Latin expression meaning that other variables are held fixed. 26

27 Models in Economics: A model is a simplified representation of a real situation that is used to better understand real-life situations. The other things being equal (ceteris paribus) assumption means that all other relevant factors remain unchanged. 27

28 1.2 and some first key principles. 28

29 Tipi di sistemi economici Allocazione delle risorse Mercato Autorità centrale Privato Capitalismo di mercato Capitalismo a pianificazione centralizzata Proprietà delle risorse Stato Socialismo di mercato Socialismo a pianificazione centralizzata 29

30 Individual Choice Principles Individual choiceis the decision by an individual of what to do, which necessarily involves a decision of what not to do. Basic principles behind the individual choices: 1. Resources are scarce. 2. The real cost of something is what you must give up to get it. 3. How much? is a decision at the margin. 4. People usually take advantage of opportunities to make themselves better off. 5. The Principle of Diminishing Returns. 6. The Real-Nominal Principle. 30

31 Principle# 1 - Resources are scarce Choices Are Necessary Because Resources Are Scarce A resource is anything that can be used to produce something else. Examples: land, labor, capital Resources are scarce the quantity available isn t large enough to satisfy all productive uses. Examples: petroleum, lumber, intelligence 31

32 Principle# 2 The Opportunity Cost The True Cost of an Item Is Its Opportunity Cost The real cost of an item is its opportunity cost: what you must give up in order to get it. Opportunity cost is crucial to understanding individual choice Example: The cost of attending an economics class is what you must give up to be in the classroom during the lecture. Sleeping? Watching TV? Rock climbing? Working? All costs are ultimately opportunity costs, and everybody thinks about opportunity cost: it is all about what you have to forgoto obtain your choice. 32

33 Principle# 2 The Opportunity Cost Opportunity cost What you sacrifice to get something. The Cost of College DIRECT: Opportunity cost of money spent on tuition and books INDIRECT: Opportunity cost of college time (three years working for 20,000 per year) Others Economic cost or total opportunity cost 14,000 60,000 X+Y+Z 74,000 + (X+Y+Z)

34 Principle# 2 The Opportunity Cost DON T FORGET THE COSTS OF TIME AND INVESTED FUNDS What is the opportunity cost of running a business? Suppose you run a lawn-cutting business, and use solar-powered equipment that you could sell tomorrow for $5,000. Instead of cutting lawns, you could work as a janitor for $300 a week. You have a savings account that pays a weekly interest rate of 0.20% (= $0.002 per 1 dollar). What is your weekly cost of cutting lawns? We can use the principle of opportunity cost to compute the cost of the lawn business. The opportunity cost of the $5,000 is $10 weekly interest. The opportunity cost of the time is $300 weekly income as a janitor. The opportunity cost of cutting lawns is $310 a week.

35 Principle# 2 The Opportunity Cost How an Economist Views a Firm How an Accountant Views a Firm Economic profit Implicit costs Explicit costs Total opportunity costs Accounting profit Explicit costs

36 Principle# 3 The Marginal Principle How Much? Is a Decision at the Margin You make a trade-off when you compare the (marginal) costs with the (marginal) benefits of doing something. Decisions about whether to do a bit more or a bit less of an activity are marginal decisions. Marginal values VS average values. 36

37 Principle# 3 The Marginal Principle Making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less. The study of such decisions is known as marginal analysis. Examples: Hiring one more worker studying one more hour eating one more cookie buying one more CD (one more) etc. 37

38 Principle# 3 The Marginal Principle Marginal benefit The additional benefit resulting from a small increase in some activity. Marginal cost The additional cost resulting from a small increase in some activity. MARGINAL PRINCIPLE Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

39 Principle# 3 The Marginal Principle How Many Movie Sequels? The marginal benefit of movies in a series decreases because revenue falls off with each additional movie, while the marginal cost increases because actors demand higher salaries. The marginal benefit exceeds the marginal cost for the first two movies, so it is sensible to produce two, but not three, movies. Number of Movies 1 Marginal Benefit ($ millions) $300 $ Marginal Cost ($ millions)

40 Principle# 4 Rational Agents respond to incentives People Usually Respond to Incentives, Exploiting Opportunities to Make Themselves Better Off An incentive is anything that offers rewards to people who change their behavior. Examples: 1. Price of gasoline rises people buy more fuel-efficient cars; 2. There are more well-paid jobs available for college graduates with economics degrees more students major in economics People respond to these incentives, even the apparently strangest ones: Kelly J Bower, Ross A Clark, Jennifer L McGinley, Clarissa L Martin and Kimberly J Miller, 2014, Clinical feasibility of the Nintendo Wii for balance training post-stroke: a phase II randomized controlled trial in an inpatient setting, Clinical Rehabilitation,

41 Principle# 5 - Diminishing Returns PRINCIPLE OF DIMINISHING RETURNS Suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. Beyond some point called the point of diminishing returns output will increase at a decreasing rate. The principle of diminishing returns is relevant when we try to product more output in an existing facility by increasing the number of workers sharing the facility. When we add a worker to the facility, each worker becomes less productive because he or she works with a smaller piece of the facility: More workers share the same machinery, equipment, and factory space. As we pack more and more workers into the factory, total output increases, but at a decreasing rate. It s important to emphasize that diminishing returns occurs becauseone of the inputs to the production process is fixed. When a firm can vary all its inputs, including the size of the production facility, the principle of diminishing returns is not relevant.

42 Principle# 6 The Real-Nominal Principle REAL-NOMINAL PRINCIPLE What matters to people is the real value of money or income its purchasing power not its face value. Nominal value The face value of an amount of money. Real value The value of an amount of money in terms of what it can buy. Government officials use the real-nominal principle when they design public programs. Social Security payments indexed to inflation Published statistics are adjusted for inflation

43 Principle# 6 The Real-Nominal Principle The value of the Minimal Wage Between 1974 and 2011, the federal minimum wage increased from $2.00 to $7.25. Was the typical minimum-wage worker better or worse off in 2011? We can apply the real-nominal principle to see what s happened over time to the real value of the federal minimum wage. TABLE 2.2 The Real Value of the Minimum Wage, Minimum wage per hour $ 2.00 $ 7.25 Weekly income from minimum wage Cost of a standard basket of goods Number of baskets per week

Università degli Studi di Torino Dipartimento di Giurisprudenza Corso di Laurea Magistrale (a ciclo unico) in Giurisprudenza Anno accademico 2017/2018

Università degli Studi di Torino Dipartimento di Giurisprudenza Corso di Laurea Magistrale (a ciclo unico) in Giurisprudenza Anno accademico 2017/2018 Economia Politica Docente: Alessandro Stanchi The