Class Summary #20 for 10/19/11

Today in class, we learned about many things. First, we discussed Feedback Loops:

1. Feedback loops exist to ensure performance. If Fed Ex fails to serve someone appropriately, word will get around by word of mouth that they aren't a good company. 
2. They try to keep their reputation intact because they know that customers who have a bad experience or don't have their packages delivered will tarnish Fed Ex reputation. 
3. Competition is a part of this, as companies don't want to give other companies an edge to get business over them.
4. Feedback loops only work well when people feed guilty about doing a bad job. In short, people need to actually give a hoot.
5. Places we enjoy the most have feedback loops because people are pressured to keep up work to make money and beat out the competition. There is a lack of it in places where we have issues, such as politics, public education, health care, etc. If we have more feedback loops in these areas, it is possible we'd complain less about them.

Trade and Exchange:

Three questions of basic economics-

1. What should be produced?
2. How do we decided what to produce?
3. Allocation System--> how do we get items from producers to consumers?

Then we learned about the production process. Prof. Rizzo outlined it the following way:

Inputs----> Black Box----> "Stuff"

Inputs= stuff that lying has been lying around on the Earth. They are resources. The black box is simply the production process where we mold things together. Finally, stuff is what the end result is.

Factors of Production

1. Factors of Production=inputs
2. Land= natural resources. Anything that was pre-existant before we came to Earth. An economic resource differs from a general resourse. Until we find out some valuable way with which to make stuff, it is a land resource.
3. Labor= bodies and people on Earth
4. Capital means two things:
1. Physical Capital- something produced to produce something else, such as a crow bar. It is created to take off tires of a car. So we produce the crow bar to produce something else for us.
2. Human Capital-all the things we do to help us become more productive/talented. It's whatever we do to make our abilities better. In other words, it is any addition to the stock of skill. Therefore, all the time we spend doing this is an investment of sorts.

Later on, Prof. Rizzo explained some very important characteristics of the study of economics, such as:

1. Doing work by yourself reduces economic activity. For example, if Prof. Rizzo makes a pizza in his house, it might only cost him three dollars. If he buys a pizza, it might cost him fifteen dollars. Thus, doing this reduces GDP in our country by $12 (in this instance).
2. Why do people produce? 
1. Simple answer = to acquire wealth.
2. What is wealth?
1. Wealth is all subjective. To an economist, wealth is whatever it is that people value. To me, I value baseball cards. If I have a lot of good cards, then I can be considered wealthy, even though baseball cards might not be a source of wealth to other people.
3. Economic growth happens when society has more of the things it wants. Things aren't necessarily material, either.
4. Trade is never an exchange of equal values. Exchange only does occur when people's values differ. In short, people exchange for different reasons- to benefit from what they are getting.