First week of Principles of Business I: Finance and Economics at the Sotheby's Institute.

1. Everyone is an artist, and a businessperson. Principles of Business I: Finance and Economics Sotheby’s Institute New York Professor Amy Whitaker Week 1 – September 7, 2011 © Amy Whitaker - a.whitaker@sothebysinstitute.com

2. Agenda Drawing. . . Overview of the Course Introductions / Housekeeping Supply and Demand © Amy Whitaker - a.whitaker@sothebysinstitute.com

3. The most valuable painting in the world has no price.

4. The founder of economics was an artist. “The founder of the science of business was one of the most unbusinesslike of mankind.” - Walter Bagehot on Adam Smith © Amy Whitaker - a.whitaker@sothebysinstitute.com

5. Adam Smith’s assumptions Profit-maximizing Act in own self interest and it will work out the best for everyone A self-regulating system

6. Then someone drew it. Alfred Marshall

7. Karl Marx Money Product Sometimes critics give the best definitions. . .

8. © Amy Whitaker - a.whitaker@sothebysinstitute.com From the perspective of people inventing these fields, they were “in the weeds” – reinventing the world as they went.

9. © Amy Whitaker - a.whitaker@sothebysinstitute.com We view their work from “the aerial view” but don’t forget how much their theories were like artworks themselves when they first appeared.

10. attention participation generosity © Amy Whitaker - a.whitaker@sothebysinstitute.com These artistic values still apply in the management of business. Paying attention, being game, and recognizing that—like artists—you are often going to asked to be generous, to be willing to put something out there before you know if you will get something back.

11. 1. letter vs. envelope © Amy Whitaker - a.whitaker@sothebysinstitute.com Making a painting is like writing a letter. Designing the envelope is building the structure of your working life.

12. © Amy Whitaker - a.whitaker@sothebysinstitute.com A company like Warby Parker does both: they design the object and the system in which the object circulates.

13. Maria Sacarias sports her first pair of glasses alongside Warby Parker co-founders Dave Gilboa and Neil Blumenthal and AmayaXoch, a local entrepreneur trained by non-profit Community Enterprise Solutions to provide glasses to those in need. San Jorge, Solola, Guatemala © Amy Whitaker - a.whitaker@sothebysinstitute.com

14. Yoyo-Buoys?

15. Inventive and socially useful, but what’s the question: “Is it good?” or “Is it profitable?”

16. “Ask what econ can do for you and what you can do for econ.” It can help your work and life. And you can help shape the creative design problems of the economy itself. © Amy Whitaker - a.whitaker@sothebysinstitute.com

17. © Amy Whitaker - a.whitaker@sothebysinstitute.com Being an artist of an economic system, or designing systems in service of art Picture of Price Discrimination or Versioning by Monday, 5pm

18. © Amy Whitaker - a.whitaker@sothebysinstitute.com Mini-MBA – Economics Finance Strategy Marketing Game Theory Accounting Statistics Operations Business Plan Writing Communication

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29. The founder of economics was an artist. “The founder of the science of business was one of the most unbusinesslike of mankind.” - Walter Bagehot on Adam Smith © Amy Whitaker - a.whitaker@sothebysinstitute.com

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31. the firm is a single unified decision maker profit- and utility-maximization efficiency allocation of resources perfect information Perfect Competition is like a cow. © Amy Whitaker - a.whitaker@sothebysinstitute.com

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33. Meghan’s 8 lessons of economics The power of arbitrage The role of price information and coordination Opportunity cost Sunk cost Decisionmaking on the margin Economic profit goes to zero in the long run Economic efficiency through markets Economics is a set of tools, not values Valuing the incalculable The creative use of economics – as artist and artisan © Amy Whitaker - a.whitaker@sothebysinstitute.com

34. Haves / Needs Barter and Gift Economies -- Ourgoods © Amy Whitaker - a.whitaker@sothebysinstitute.com Ourgoods.org

35. Introductions and Housekeeping © Amy Whitaker - a.whitaker@sothebysinstitute.com

36. introductions © Amy Whitaker - a.whitaker@sothebysinstitute.com Jennifer Rubell, eight by sixteen feet, over 1,600 cones of cotton candy to make

37. Class Wednesday, 1-4pm Office Hours Tuesdays, 2-4pm Seminar Tuesdays, 1-2pm [only once per term] TA / Adjunct Faculty: Kibum Kim © Amy Whitaker - a.whitaker@sothebysinstitute.com

38. Workshops Excel (with Erin Elliott, Head Librarian) Thursday, September 8 – 3:30-4:30pm | Thursday, September 15 – 3:30-5:00pm Financial Statement Workshop – TBD Writing Budgeting (Prof. Whitaker) – Monday, November 28 © Amy Whitaker - a.whitaker@sothebysinstitute.com Excel rsvp – e.elliott@sothebysinstitute.com Tell her the kind of computer you use

39. Other Dates [all in the syllabus] September 14 – Sandy Nairne, Director of the National Portrait Gallery, London September 28 – Rosh Hashanah October 1 – Creative Time Project Room November 30 – No Class [Miami Trip] © Amy Whitaker - a.whitaker@sothebysinstitute.com

40. Grading Midterm Exam: 25% Final Exam: 40% Weekly Problem Sets and Cases: 25% [graded high pass, pass, fail] Attendance and Participation: 10% Homework due Mondays, 5pm © Amy Whitaker - a.whitaker@sothebysinstitute.com

41. © Amy Whitaker - a.whitaker@sothebysinstitute.com The class is a community. Act as part of the community you want it to be. Other people here are a resource. They are your future collaborators and partners. Assume best intentions—and act with them. Remember that people are doing the best they can. Treat each other with mutual respect. Step up / step back. Be mindful of the size of the room. Ask if something is unclear. Respect people’s time and, where you can, do research before you ask. Show up. Try to be fully present both mentally and physically.

42. Week 1: Neil Blumenthal, NYT © Amy Whitaker - a.whitaker@sothebysinstitute.com

43. 3 things Glean - read a story through economic glasses, to build “mental coathangers” for business, to be from “The Economists” Analyze – be able to structure and problem-solve economically, to have a considered opinion on business stories in the press, to be able to diagnose your competitor’s business model Make – to be able to make decisions and build organizations, to trust your own judgment © Amy Whitaker - a.whitaker@sothebysinstitute.com

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45. supply and demand © Amy Whitaker - a.whitaker@sothebysinstitute.com

46. The Market for Winter Coats © Amy Whitaker - a.whitaker@sothebysinstitute.com

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50. supply and demand © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

51. example: museum tickets © Amy Whitaker - a.whitaker@sothebysinstitute.com Chris likes to go see museums a lot. He will pay $20. Imelda likes museums but she doesn’t have a lot of money. She would pay $10. Bob is a museum director. He loves to go but he doesn’t pay. His willingness to pay, if pressed, would be $5. Amanda likes to go and would pay $15. Fred is a tourist and would pay $25, especially given the exchange rate.

52. “horizontal adding” © Amy Whitaker - a.whitaker@sothebysinstitute.com

53. Demand © Amy Whitaker - a.whitaker@sothebysinstitute.com

54. © Amy Whitaker - a.whitaker@sothebysinstitute.com You’re thinking of buying these sneakers. What are you weighing?

55. The determinants of demand © Amy Whitaker - a.whitaker@sothebysinstitute.com Tastes  [in and out of fashion, e.g., Sodastream, bagels in the ‘90s, digital cameras replacing film] Income [how much you can spend in general and in relation to other goods] Number of buyers  [demographic, e.g., retirees start to like these, high season in a summer resort town, immigration, population growth] Change in price of related goods  [comparison shopping, e.g., Converse go on sale] Change in expectations  [there is about to be a sneaker shortage, your salary is about to change]

56. © Amy Whitaker - a.whitaker@sothebysinstitute.com Maslow’s Hierarchy of Need

57. types of goods © Amy Whitaker - awhitaker@cca.edu Inferior vs. normal goods complements and substitutes

58. complements and substitutes © Amy Whitaker - a.whitaker@sothebysinstitute.com

59. utility © Amy Whitaker - a.whitaker@sothebysinstitute.com

60. © Amy Whitaker - a.whitaker@sothebysinstitute.com Diminishing marginal returns

61. The law of demand © Amy Whitaker - a.whitaker@sothebysinstitute.com P (Price) D (Demand) Q (Quantity)

62. Supply © Amy Whitaker - a.whitaker@sothebysinstitute.com

63. making things © Amy Whitaker - a.whitaker@sothebysinstitute.com 3 factors of production: Land – gifts from nature Labor – physical and mental effort Capital – equipment and facilities Entrepreneurship?

64. © Amy Whitaker - a.whitaker@sothebysinstitute.com “allocative efficiency”

65. © Amy Whitaker - a.whitaker@sothebysinstitute.com It is a belief of economics that markets can lead to the best use of scarce resources. If someone uses wood to build this house, it must be the best thing to do with wood. (We will get to externalities and market failures next time.)

66. efficiency – Adam Smith’s pin example © Amy Whitaker - a.whitaker@sothebysinstitute.com To take an example, therefore,*19 from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade),*20 nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.*21 I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

67. Costs Fixed Costs: overhead (rent, utilities). Does not vary with level of production. Variable Costs: materials, hourly workers. Varies with level of output. Opportunity Costs: the cost of your next best alternative. The value of your time. © Amy Whitaker - a.whitaker@sothebysinstitute.com

68. Opportunity cost © Amy Whitaker - a.whitaker@sothebysinstitute.com What is the opportunity cost of Bill Gates, Oprah Winfrey, or Steve Jobs having gone to college?

69. Opportunity Cost © Amy Whitaker - a.whitaker@sothebysinstitute.com Going to school? Not going to school? Starting a company? Not starting a company?

70. Common Cost Terms © Amy Whitaker - a.whitaker@sothebysinstitute.com economic cost accounting cost sunk cost fixed cost long-run cost average fixed cost dollar cost short-run cost resource cost variable cost Implicit cost average variable cost total cost explicit cost average total cost marginal cost

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72. The law of supply © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) Q (Quantity)

73. supply and demand together © Amy Whitaker - a.whitaker@sothebysinstitute.com

74. supply and demand © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

75. The relationship of price and quantity © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) Change in price moves you along the curve. D (Demand) Change in anything else shifts the curve. Q (Quantity)

76. shortage © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) 2: demand increases 1: supply constricts Q (Quantity)

77. surplus © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) 2: demand falls 1: supply increases D (Demand) Q (Quantity)

78. shifts in supply and demand © Amy Whitaker - a.whitaker@sothebysinstitute.com

79. cigarette tax © Amy Whitaker - a.whitaker@sothebysinstitute.com S2 S (Supply) P (Price) 2: like adding $2 to cost $8 1: the government adds $2 to every pack $6 D (Demand) Q (Quantity)

80. Airline fuel more expensive? © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

81. Airline fuel more expensive? © Amy Whitaker - a.whitaker@sothebysinstitute.com S2 S (Supply) P (Price) $250 $240 D (Demand) Q (Quantity)

82. Your income goes up. . . © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

83. Your income goes up. . . © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D2 D (Demand) Q (Quantity)

84. Consumer and Producer Surplus © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

85. Price Discrimination © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

86. Versioning © Amy Whitaker - a.whitaker@sothebysinstitute.com

87. Price Discrimination © Amy Whitaker - a.whitaker@sothebysinstitute.com Day of the week specials (car wash, manicure, airfare) Senior discount (age-based) Financial aid What else?

88. Excel Workshop Tomorrow, September 8, Lex 1 3:30-4:30 RSVP to Erin Elliott with type of computer © Amy Whitaker - a.whitaker@sothebysinstitute.com

89. © Amy Whitaker - a.whitaker@sothebysinstitute.com Picture of Price Discrimination or Versioning by Monday, 5pm