Exploration 2

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Exploration 2

• Economic Reasoning
• The Dreaded Disease

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You should be able to

• Define economics
• Define opportunity cost and give illustrations
• Define market, political, social and cultural
  forces
• Explain the invisible hand
• Reflect on the relative merits of each in the
  context of opportunity cost and The Dreaded
  Disease problem.

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What is economics?

• Economics is the study of how human beings
  COORDINATE their wants desires in the face of
  SCARCE resources, given
• Decision-making mechanisms
• E.g. free markets for goods services
• E.g. within the family
• Social customs
• E.g. self-interest
• Political realities
• E.g. acceptance of private property

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The coordination problems

• What and how much to produce?
• Mix of luxury yachts affordable housing
• How to produce it?
• Skilled labor vs. low-paid labor WalMart
• For whom to produce it?
• Unequal distribution of income vs. more equal
  distribution

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What is the problem of scarcity?

• Our unlimited wants
• Our limited means of fulfilling those wants
  resources
• Thus choices need to be made
• In some situations we control our own choices
  e.g. selecting a car
• Sometimes others make choices for us this can be
  more coercive -- getting more work out of us

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Choice ?Opportunity Cost

• Benefit forgone by undertaking one activity over
  another.
• Cost of choosing the next-best alternative
• Examples?
• Personal? What is your opportunity of taking
  this course?
• Public policy (government) examples?
• War against terrorism vs. natural disasters

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Issue security from terrorismWhat is
opportunity cost of Iraq war?
http//www.americanprogress.org/site/pp.asp?cbiJR
J8OVFb171440
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Examples of Opportunity Cost
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Which of the following could be an opportunity
cost of recycling aluminum, paper and cardboard
from trash? A) Purchasing a new garbage truck
designed to collect sorted trash. B) Hiring more
teachers for local schools. C) The salary paid to
the administrator of the recycling program. D)
The cost of special collection bins for
recyclable trash.
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The answer is . . .

• B Hiring more teachers for local schools.
• LO 1-3 learning objective
• Page  8 Skill  Application
• Response The opportunity cost of the recycling
  program is the net benefit sacrificed in order to
  implement the program, which is just what could
  have been done if the recycling program had not
  been undertaken.

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Economic forces scarcity choice

• Market forces reliance on prices, supply
  demand allocation of goods
• Private corp efficient quick golden rule
• The Invisible Hand market competition
• Social/cultural forces reliance on norms
• Tradition, ethics, family religious values
• Social service agencies, churches, the family
  cumbersome ethical fair
• Political/legal forces reliance on laws
• Rights, obligations, conflict resolution
• Public agencies cumbersome compromise peace
  if not justice

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The Dreaded Disease

• A team project

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Key ideas

• Disease affects 80 of children
• Doses of antidote
• None 90 die
• 1 10 die 2 8 3 6 4 5
• 1000 children 1000 doses
• 100 rich 900 poor
• Ways to handle the scarcity problem
• Market forces dominate
• Social/cultural/political forces dominate

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Next time Capitalism

• Read Colander Ch 3 (we are skipping Ch 2 for now)
• Defining features of capitalism (vs. socialism)
• The circular flow Figure 3-1, p59
• Households
• Business firms
• Government
• Who holds power?

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Wrap up What did you learn today?

• What is opportunity cost?
• What are market, political, social and cultural
  forces
• What is the invisible hand
• What are the lessons from The Dreaded Disease?

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Minute paper

• What was the most important thing you learned
  today?
• What questions remain uppermost in your mind as
  we conclude this class session?