Intro to Economics: Crash Course Econ #1

Summary

In this engaging Crash Course Economics video, hosts Jacob Clifford and Adriene Hill introduce viewers to the world of economics with a blend of humor and insight. They clarify misconceptions about the field, emphasizing that it's not solely about money or the stock market but a study of human choices and behavior. The hosts differentiate between macroeconomics, which examines the economy as a whole, and microeconomics, which focuses on individual decision-making. Throughout the video, they discuss key concepts such as scarcity, opportunity cost, and the role of incentives in shaping economic outcomes. By using real-world examples and addressing the impact of politics on economics, the video aims to demystify the subject and empower viewers with a deeper understanding of economic principles that can influence their daily lives and societal decisions.

Takeaways

• 🎓 **Economics Focus**: Economics is the study of people and choices, not merely money or the stock market.
• 👥 **Hosts' Backgrounds**: Jacob Clifford, a high school economics teacher and YouTuber, focuses on economic theories and graphs, while Adriene Hill, a senior reporter for Marketplace, covers real-world applications.
• 🌐 **Location**: Crash Course Economics is filmed at the YouTube space in Los Angeles, California.
• 📉 **Economics Misconceptions**: Dispelling myths that economics is boring or solely about forecasting, the hosts aim to show its relevance and excitement.
• ⏰ **Opportunity Cost**: Introduced as the cost of the next best alternative when making a choice, a fundamental concept in economic decisions.
• 🚗 **Scarcity and Choice**: Highlighted as the idea that people have unlimited wants in a world of limited resources, necessitating choice and prioritization.
• 💰 **Cost of Everything**: Reiterated that every action and decision has a cost, emphasizing the need for economic analysis to optimize resource use.
• 🇺🇸 **Military Spending**: Used as an example to discuss opportunity costs, where resources allocated to military could alternatively be used for social services.
• 🤔 **Policy and Incentives**: Discussed the importance of designing the right incentives to achieve desired outcomes in areas like education and healthcare.
• 📈 **Macro vs. Micro Economics**: Distinguished between macroeconomics, which studies the economy as a whole, and microeconomics, which looks at individual components.
• 🌟 **Economics Impact**: Emphasized that economics is not just for academics; it influences everyday decisions and can improve problem-solving skills.

Q & A

What is the main focus of Crash Course Economics?

Crash Course Economics focuses on teaching the theories and graphs of economics, as well as the real-world applications of economics. It aims to help viewers understand the world and make it a better place through the lens of economic concepts.

Who are the hosts of Crash Course Economics in this script?

The hosts of Crash Course Economics in this script are Jacob Clifford, a high school economics teacher and YouTuber, and Adriene Hill, a senior reporter for the public radio show Marketplace.

Why is John Green not hosting the Crash Course Economics series?

John Green is not hosting the series because he decided to spend more time writing books. He evaluated the benefits and costs of his choices and made a decision based on those considerations.

What is the definition of economics according to Alfred Marshall?

According to Alfred Marshall, economics is the study of man (and woman) in the ordinary business of life. It inquires how individuals get their income and how they use it, making it a study of wealth and, more importantly, a study of man (and woman).

What are the two most important assumptions in all of economics?

The two most important assumptions in economics are the idea of scarcity, which means people have unlimited wants but limited resources, and the fact that everything has a cost.

What is the opportunity cost of watching a video on YouTube?

The opportunity cost of watching a video on YouTube is the value of the next best alternative, which could be watching other videos, engaging in other activities, or even working.

Why did the rat bounty policy in Vietnam under French colonial rule backfire?

The rat bounty policy backfired because rat-catchers cut off the tails of rats and released them, allowing them to reproduce. This led to an increase in the rat population instead of a decrease.

What is the difference between macroeconomics and microeconomics?

Macroeconomics studies the economy as a whole, looking at national output, unemployment, interest rates, government spending, and growth. Microeconomics, on the other hand, focuses on individual units within the economy, such as businesses or households, and their interactions.

How does the script address the criticism that economists failed to predict the 2008 financial crisis?

The script explains that criticisms about the failure to predict the 2008 financial crisis are often directed at macroeconomists. It clarifies that there is another side of economics, microeconomics, which focuses on different questions and is not concerned with predicting overall economic trends.

What is the role of incentives in economics?

Incentives play a key role in economics as they influence the behavior of individuals, businesses, and governments. Properly designed incentives can help solve problems without adding more resources, while poorly designed incentives can lead to unintended consequences.

Why is it important to understand economics?

Understanding economics is important because it can change the way one thinks and solves problems. It helps individuals make more informed decisions and contributes to a better understanding of the world and its economic systems.

What is the significance of scarcity in economic decision-making?

Scarcity is significant in economic decision-making because it forces individuals, businesses, and governments to weigh the benefits and costs of their decisions and make choices. It highlights the need to prioritize and allocate limited resources effectively.

Outlines

00:00

😀 Introduction to Crash Course Economics

The video script introduces the hosts, Jacob Clifford and Adriene Hill, who are co-hosts of the Crash Course Economics series. They discuss their backgrounds, with Mr. Clifford being a high school economics teacher and Adriene Hill being a senior reporter for Marketplace. The hosts also interact humorously with Muppets Statler and Waldorf, who question the absence of the Green brothers. Kermit the Frog offers support and suggests the hosts introduce themselves, leading to a discussion about the focus of the series: Mr. Clifford will cover economic theories and graphs, while Adriene will explore real-world applications. The script emphasizes that economics is about people and choices, not just money or the stock market, and introduces the concept of opportunity cost.

05:01

🤔 Economics of Scarcity and Opportunity Cost

This paragraph delves into the fundamental concepts of scarcity and opportunity cost in economics. It explains that scarcity means unlimited wants with limited resources, and everything has a cost. The hosts use examples like car accidents, military spending, and the decision to go to college to illustrate the necessity of weighing benefits against costs. The script also touches on the role of politics in economics, emphasizing the importance of incentives in policy design. It highlights how poorly designed incentives can lead to unintended consequences, using the example of Vietnam's rat bounty program. The paragraph concludes with a brief mention of the difference between macroeconomics and microeconomics, setting the stage for further discussion in future videos.

10:04

📈 The Scope of Economics and Upcoming Topics

The final paragraph outlines the scope of economic study, differentiating between macroeconomics, which looks at the economy as a whole, and microeconomics, which focuses on individual decision-making. The hosts express their intention to cover a wide range of topics in the upcoming 40 weeks, from supply and demand to monetary policy. They stress the importance of economics in everyday decision-making and its role in shaping a more informed society. The video concludes with a call to support the show on Patreon to keep Crash Course free for everyone and a thank you note to the viewers.

Keywords

💡Economics

Economics is the social science that studies the production, distribution, and consumption of goods and services. In the video, it is emphasized that economics is not merely about money or the stock market, but rather the study of people and their choices, particularly how individuals, businesses, and governments allocate scarce resources to satisfy their unlimited wants.

💡Opportunity Cost

Opportunity cost is an economic concept that represents the value of the next best alternative when a choice is made. The video uses the example of watching a video on YouTube, where the opportunity cost is the enjoyment or value derived from not watching other potentially more entertaining videos.

💡Scarcity

Scarcity refers to the economic principle that human wants are unlimited, but the resources available to fulfill those wants are limited. This concept is fundamental to the video's discussion on economics, as it underpins the need for decision-making and trade-offs in resource allocation.

💡Incentives

Incentives in economics are factors that motivate individuals to take certain actions. The video discusses how the right incentives are crucial for effective policy and decision-making, using examples such as public college funding and healthcare to illustrate how incentives can influence outcomes.

💡Macroeconomics

Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole, including topics like national income, output, and inflation. The video differentiates between macroeconomics and microeconomics, noting that macroeconomics often deals with broader economic issues and policies.

💡Microeconomics

Microeconomics focuses on the study of individual economic units, such as households and firms, and their interactions in specific markets. The video contrasts this with macroeconomics, highlighting that microeconomic questions are more about individual decision-making and market behaviors.

💡Public Policy

Public policy refers to the decisions made by governments that affect the lives of citizens. In the context of the video, public policy is discussed in relation to how economic theories and incentives guide these decisions, and the impact they have on society.

💡Crash Course Economics

Crash Course Economics is the name of the educational series being discussed in the video. It is a YouTube series that aims to teach viewers about various economic concepts and theories in an engaging and accessible manner. The video script outlines the structure and intent of the series.

💡John Green

John Green is mentioned in the video as an entrepreneur and author who is known for his involvement in educational content creation. His absence from hosting the Crash Course Economics series is attributed to his decision to focus on writing books, illustrating the concept of opportunity cost in personal decision-making.

💡Benefits and Costs

The concept of benefits and costs is central to economic decision-making. The video uses this concept to discuss how individuals and societies must weigh the pros and cons of various choices, such as military spending versus social services, to determine the most efficient use of resources.

💡Thought Bubble

The 'Thought Bubble' is a segment within the video that provides a deeper analysis or explanation of a particular topic. In the context of the script, it is used to clarify the difference between macroeconomics and microeconomics, enhancing the viewer's understanding of these economic disciplines.

Highlights

Jacob Clifford and Adriene Hill co-host Crash Course Economics, focusing on the theories and real-world applications of economics.

Economics is defined as the study of people and choices, not merely the study of money or the stock market.

Alfred Marsh's definition of economics emphasizes the study of individuals in their ordinary business of life, including income and wealth.

Economics involves decision-making, such as an 18-year-old choosing between work and college, a company deciding on product lines, and government fiscal policies.

Economics is not inherently boring; it can change the way one thinks and solves problems, aiming to make the world a better place.

The concept of opportunity cost is introduced, where the cost of an action is measured by the value of the next best alternative.

John Green's absence from hosting is due to his entrepreneurial ventures and the decision to focus on writing books.

Two fundamental economic assumptions are scarcity, with unlimited wants and limited resources, and the idea that everything has a cost.

Absurd solutions to problems, like crushing all cars to prevent accidents, are highlighted to illustrate the importance of weighing costs and benefits.

U.S. military spending is used as an example to discuss opportunity costs, such as the potential for funding social services.

The role of politics in economics is mentioned, emphasizing the balance between free market capitalism and government intervention.

Economists use data and understanding of incentives to guide public policy, which can have widespread effects on society.

Incentives in public colleges and universities are discussed, showing how they can be adjusted to improve graduation rates and student success.

The importance of getting incentives right is emphasized, using the example of Vietnam's rat bounty policy that backfired.

The difference between macroeconomics and microeconomics is explained, with macro focusing on the economy as a whole and micro on individual decision-making.

Crash Course Economics aims to enlighten viewers and make them more informed decision-makers over the course of 40 weeks.

The show is made possible by a team of individuals who work for both financial and implicit benefits, covering their opportunity costs.

Transcripts

Mr. Clifford: Hi, I'm Jacob Clifford and I'm the host of Crash Course economics. Stan! 

Adriene: Hi, I'm Adriene Hill and I'm the host of Crash Course economics. Stan!

Stan: You're a team! You're co-hosts.

Adriene: All right, awesome. Mr. Clifford: Yeah, whooo!

Adriene: Well anyways, we're making our Crash Course Economics series at the YouTube space

in lovely Los Angeles California because Mr. Clifford and I are both from Southern California.

Mr. Clifford: Yeah.

Statler: Who are these no-names!?

Waldorf: Where are the Green brothers? If there aren't any Greens, I'm unsubscribing.

Statler: Wh-- how can you unsubscribe? What is this, some kind of a moving newspaper?

Mr. Clifford: Did we just get heckled by the muppets?

Adriene: It sounds like it.

Kermit: Hey guys, hey guys listen, don't feel bad about not being green, OK?

Adriene: It's Kermit!

Mr. Clifford: That's crazy!

Kermit: Hi guys, uh listen, being green is great and everything but being Adriene and

Mr. Clifford well, that's great, too! In fact, you know guys, it's not easy being green.

I think I could sing a song about that.

Adriene: Can I sing with you? Kermit: Oh course, yeah. 

Adriene: This is a dream. This is a dream.

Mr. Clifford: No, no, no, we  can't afford the licensing 

agreement for that song guys, economics. Sorry.

Kermit: Oh. Oh. Well, in that case, why don't you guys just introduce yourselves?

Mr. Clifford: OK. I'm Mr. Clifford, and I'm a high school economics teacher and YouTuber,

and I'm going to focus on  teaching you the theories 

and graphs of economics. You  know, the textbook stuff.

Adriene: And I'm Adriene Hill; I'm a senior reporter for the public radio show Marketplace,

and I'm gonna focus on showing you the real world applications of economics. You know,

the good stuff. The really fun stuff.

Mr. Clifford: Hey! We're  both fun! We're definitely 

not gonna teach economics like this:

Prof. Bunsen Honeydew: Welcome to CrashCourse Economics (Beaker yawns) I am thrilled to

be teaching you this fascinating subject. (Beaker moans)

Mr. Clifford: I'm sorry  Professor Honeydew, but that's 

why people hate economics  in high school and college.

Adriene: Anyway, Statler and Waldorf have a point, the most important question in economics

is "Where's John Green?" I mean everyone knows he won a bronze medal in economics at the

Alabama State Academic Decathlon. Well, John Green 

isn't hosting because  economics. We'll explain later.

[Theme Music]

Mr. Clifford: So let's start with the basics. What is economics? Well it might be easier

to term it what economics isn't. Economics is not the study of money or getting rich,

although understanding economics can help with that. Economics is not the study of the

stock market. It's just not. And economics is not primarily about men in bow-ties forecasting

what will happen in a given market or the overall economy. Actually, a few economists

do that, but that's not the main focus of economics.

Economics is the study of people and choices. The famous economist Alfred Marsh defined

economics as "A study of man (Adriene: And woman!) in the ordinary business of life.

It inquires how he gets his income and how he uses it. Thus, it is on the one side the

study of wealth and on the other and more 

important side a study of  man (Adriene: And woman)."

Adriene: So let's talk a minute about what else econ is. Economics is an 18 year old

deciding whether to work or go to college and how that affects her future income. Economics is

a company deciding whether to produce smartphones or tablets and how that's influenced by what

we consumers want to buy. Economics is the government deciding whether to increase its

spending when it's a recession and if it's worth going into debt.

So despite what you might think, economics is not boring and dull. OK, some of it is,

but it's not all like that I promise! It's awesome. Understanding econ can forever change

the way you think and problem-solve. Our job over the next 40 weeks is to teach you concepts

that will help you understand the world, and hopefully make it a better place.

No matter who you are, you  will be using economics. 

In fact, pewww! You are using econ right now,

you made a choice to watch this video, that means you must feel that the benefit outweighs

the cost. You might be thinking "This is YouTube, there's no cost," but sure there is. You could

be watching videos of kittens or skaters falling on their face or charlie biting fingers. Ow!

The cost of watching this  video is the video you're 

not watching, the value of  the next best alternative.

Economists call this your opportunity cost. If you're still watching this video it means

that you believe it's the best use of your time, or you wouldn't be watching it. "But

what if I'm watching this at school?" you ask, "What if I'm forced to watch this?" Well,

you weren't forced to go to school, you could ditch, you could drop out, you could move

to a country that doesn't have compulsory education. But the cost would outweigh the

benefit. Even if you are at school, you're not forced to watch the video, you could close

your eyes or put your head down. No one's gonna pry your eyes open, that'd be creepy!

Now let's talk about why John Green isn't 

here teaching this course.  John is an entrepreneur,

he writes books, runs DFTBA, Vlogbrothers, and Mental_Floss and creates movies, but he can't

do everything he wants to  do. He looked at the benefits 

and costs of his choices, and in the end decided

to spend more time writing books, so Mr. Clifford and I are jumping in to teach you economics.

Mr. Clifford: And believe it or not, we just covered the two most important assumptions

in all of economics. First, the idea of scarcity. People have unlimited wants but limited resources,

and second, everything and I mean everything has a cost. And if these assumptions are true,

then we need a way to analyze our choices and get the most from our limited resources.

And that's economics.

Adriene: Wait, but let's go back to the idea of benefits and costs. About 30,000 people

a year die in car accidents in the US. Is there a way to ensure there will never be

another traffic fatality? Yes! We can crush all the cars, close all the roads, and force

everyone to walk. That would solve the car crash problem. Do you want to decrease the

number of people convicted of murder? You could decriminalize murder. You want to end

the unethical treatment of elephants? You could 

kill off all the elephants,  in an ethical way of course.

But before you decide to tenderly euthanize herds of beautiful elephants, think about

it for a second. Each of these solutions is absurd because the cost clearly outweighs

the benefit. Traffic fatalities are tragic, but we don't prevent them at all costs. You

know that driving has risks, that you might get in a car accident, but you still drive.

Why? Well first, who's gonna walk to the gym? And walking home with groceries in the rain

is way worse than the teeny-tiny chance of dying in a car crash. The point is, individuals,

businesses, and countries can't have everything, so they're forced to weigh the benefits and

costs of their decisions and make choices.

Let's look at another example. Military spending in the United States is over 600 billion dollars

per year, that's close to what the next top ten countries spend combined. There are a

total of about 20 active aircraft carriers in the world, and the US has half of them,

and it's building more. The opportunity cost of those aircraft carriers could be hospitals,

schools, and roads. So, is the US spending too much on the military? Should the US focus

on making guns or butter? That is, weapons or consumer goods?

Mr. Clifford: And notice the key word here is "or," we can't produce an infinite amount

of weapons AND consumer goods because we don't have an infinite amount of workers and farms

and factories and raw materials. Scarcity means we must make a choice. The American

president Dwight D. Eisenhower explained this best 

in 1953 in a speech about  Cold War military buildup.

"Every gun that is made, every warship launched, every rocket fired signifies, in the final

sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

This world in arms is not spending money alone. It is spending the sweat of its laborers,

the genius of its scientists, the hopes of its children."

And this is a good time to mention the role of politics in economics; we're not pushing

some liberal anti-military policy here. We're just pointing out that military spending has

an opportunity cost: The resources not being used for social services like feeding the hungry.

We're gonna try not to push a political agenda on you. We're gonna show you both sides and

let you decide which one's best. So please don't say "Mr. Clifford loves capitalism,

so he's just a pro-business conservative," or "Adriene's talking about environmental

regulations, so she's an anti-business liberal."

Yeah, we are pro-business and you are too. I mean, where do you think your computer came

from? That computer was brought to you by capitalism and the private sector. But that

being said, the security and laws, roads, and that traffic ticket you got the other

day came from the government.

Conservatives and liberals fight over the details, but the free market alone can't solve

all of our problems. And the government can't solve all of them either. Government officials

use economic theory to guide public policy; their effects are widespread and affect millions

of people. Sometimes a theory is flawed, but many times a policy is flawed. Economists

adjust theories supported  by data and understanding 

of incentives. Having the right incentive is key.

Adriene: But the right incentives can be hard to figure out. Take for example public colleges

and universities. Many of them used to get state money for each student they enrolled.

That meant universities had financial incentives to focus on recruiting as many students as

possible, but not actually helping them succeed once they were in class.

So states have started changing the incentives. Now, more and more states reward schools for

the number of students that complete courses or earn degrees. And in some places this has

worked; it's helped schools  increase their graduation 

rates by shifting money from marketing budgets

to programs to help students do better, but those 

incentives can also backfire  if they're poorly designed.

A university that gets money for graduates could push students through the program without

giving them a good education. It might want to only admit students who come in with super

high test scores, instead of considering other factors that might make them good candidates.

It might push students into less-rigorous majors.

But incentives can help solve problems without adding more resources. You just have to get

the incentives right. Many non-economists assume that the way to improve things like

healthcare is to spend more money.

Economists would point out that the US already spends almost twice as much per person as

other rich countries, and in many cases they get worse health outcomes. Economists would

also say that rather than spending more money, we need to make sure that insurers, doctors,

hospitals, and patients have incentives to produce the most effective care possible at

the lowest cost possible. The point is, if you 

mess up the incentives, the  policy's not gonna work.

When Vietnam was under French colonial rule, the regime issued a bounty on rats to exterminate

them, giving money to people for handing in rat tails. I guess because piles off rat bodies

were too gross. The plan backfired. To make as much money as possible, the rat-catchers

cut the tails off the rats and released them, allowing them to make baby rats. The policy

actually increased the rat population. It made things worse. Eek!

We'll talk more about this idea of perverse incentives in another video, when we talk

about the 2008 financial crisis. Eek again. For now, let's go to the Thought Bubble.

Mr. Clifford: Speaking of 2008, people sometimes criticize economists asking "Why didn't they

predict the 2008 financial crisis?" or, "why can't they agree on what the government should

do or shouldn't do when there's a recession?" These criticisms fail to distinguish between

macroeconomics and microeconomics.

Specifically, all these complaints are about macroeconomics. Macro studies the economy

as a whole; it looks at the whole nation's output, unemployment, interest rates, government

spending, and growth. Macro answers questions like "Will unemployment rise if there's an

increase in taxes?" "Will and increase in the money supply boost output or just increase

inflation?" "Will a slump in European economies cause the US economy to slow down?"

Macroeconomists get more airtime because they predict the direction of the overall economy,

and work with the media and businesses and congress and the Federal Reserve, but less

than half of all economists are macro economists; there's a whole other side of economics that

look at different questions. "How many workers should we hire to maximize profit?" "If our

main competitor releases their product in May, when is the best time to release our

product?" and "which is better for fighting climate change, a gas tax, or increase in

fuel efficiency?" These are all microeconomic questions. They're not about predicting GDP,

or measuring unemployment, but they are crucial questions that economists must answer. Also,

if you don't know what GDP  is or what a high or low 

unemployment rate is don't worry, we'll get there.

So macro and micro-economists are two different groups asking different questions under one

academic umbrella. If economics was biology, 

macroeconomics would be  ecology while microeconomics

would be cell biology. If economics was physics, macro would be cosmology and relativity while

microeconomics would be Newtonian mechanics.

Thanks Thought Bubble! Stan, I've always wanted to say that. Now I can cross it off my bucket

list. Now I have "ring the opening bell at the New York Stock Exchange," "arm wrestle

Ben Bernanke," and "swim in a giant pool of money like Uncle Scrooge."

Adriene: Obviously we're glossing over the details, but we promise to cover everything

in the next 40 weeks from supply and demand to monetary policy, we'll cover it all. Except

for maybe the giant pools of money. We can't promise you that learning economics will make

you wealthy, but we can promise that learning economics will enlighten your mind and make

you a more informed decision maker. And that makes us all better off. Thanks so much for

joining us. We'll see you next week.

Mr. Clifford: Thanks for watching Crash Course Economics. It was made with the help of all

of these nice people. They work on the show because there's financial and implicit benefits

that cover their opportunity costs. Now, if you want to help them with those financial

benefits, consider going over to Patreon. It's a voluntary subscription platform that

allows you to pay whatever you want monthly to help make Crash Course free for everyone,

forever. Thanks for watching. DFTBA.