ECONOMICS

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ECONOMICS

• What is it?

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on p. 2 of your spiral.
Economics is
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pg. 4 spiral Economic Reasoning Important Terms
word definition image
scarcity
tangible intangible
resources
opportunity cost
rationing device
trade-off
constraints
marginal
utility
good
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Economic Reasoning An Economic Way of Thinking

• Reference Chapter 1.1-2

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Scarcity
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next available page Economic Reasoning
Basic Economic Principles

• Scarcity Wants Resources

Scarcity is the condition where our wants are
greater than our resources
None of us can have as much as we want of
everything we want --Oliver Wendall Holmes
What are wants????
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Economists claim that wants are unlimited. Do you
agree? Why/why not?

• tangible

• intangible

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Philosophers have confronted the unlimited nature
of human wants
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Wants

• anything that gives us utility or satisfaction
• something that provides utility is a good
• disutilitybad

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Scarcity Wants Resources

• What are resources?

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Resources

• whats needed to produce a good or service

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Scarcity Choices

• Because there is scarcity, choices have to be
  made.
• personal
• communally
• nationally
• globally
• Choices are made be examining the costs and
  benefits of each option
• a person will generally or always choose the
  option where benefits costs

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Choice Opportunity Cost

• When a choice is made, an opportunity cost is
  incurred.
• Opportunity Cost
• the most valued alternative
• what you would have done
• your next most valuable alternative
• what you gave up to do what you did
• not what you could have done
• not price

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You can incur an opportunity cost without
spending any money.

• Give an example.

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Lets Make a Deal!!!
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Choices have to be made!

• Door 1--Phantom?
• OR
• Door 2 A house inVista 300,000
• Honda Accord MSRP of 25,000
• Gas allowance of 3,000
• Monthly allowance for shopping of 1,000 for 1
  year
• OR
• Door 3--A 340,000 trip around the world

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• When you forgo doing homework to get on Facebook,
  your opportunity cost for getting on Facebook was
  your homework.
• Your choice. Your opportunity cost

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Is the opportunity cost for attending high school
the same for all students?
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Changes in opportunity costs change behavior

• Increase opportunity cost do less of it
• Decrease opportunity cost do more of it

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Increase the Opportunity Cost-Do Less of It
Im hungry. What should I do?

• Decision
• Eat at Jack-In-The-Box
• Youll do less of this.

• Opportunity Cost
• Eat at Mc Donalds
• High Opportunity Cost
• MacDonalds reduces prices
• More choices added at Mickey Ds
• Certified Cleanest Fast Food Restaurant in SD
  County

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Decrease opportunity cost Do More of it

• Decision
• Eat at Jack-In-The-Box
• Youll do more of this.

• Opportunity Cost
• Eat at McDonalds
• Low Opportunity Cost
• McDonalds raises prices
• Only serves strawberry shakes
• E. Coli outbreak

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The Global Economy Employment

• Benefit wages
• per unit of time

• Opportunity Cost Time
• Leisure Forfeited

• Opp.Cost of a Big Mac (1994)

New York 26 min. Sydney 26 min Hong Kong 28 min. Singapore 35 min London 36 min
Brussels 36 min. Paris 38 min Tel Aviv 53 min. Rio 147 Prague 220
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Scarcity Rationing Device

• Because there is scarcity there must be a
  rationing device
• a means of deciding who get what and how much of
  available resources or goods.

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Rationing device
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Scarcity Competition

• Because there is scarcity, we can infer there
  will be competition

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More Ways to Think Like an Economist

• trade-offs
• decisions made on the margin
• unintended consequences

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Another consequence of scarcity Trade-offs

• More of one thing frequently means less of
  something else.
• Trade-0ff when more of one thing necessarily
  means less of something else.

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Choices made on the marginMarginal choices made
by comparing marginal costs to marginal benefits

• What will be the costs/benefits of
  doing/making/buying a bit more?
• What would be the marginal cost or benefit of
  studying 1 more hour?
• buying another hamburger?
• spending another hour at the beach?

marginal additional
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• Has anything ever turned out differently than you
  intended?

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Unintended Effects

intended
action ? effects
action ? effects positive
unintended
negative

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• Pollution
• Rent control laws
• Interstate highway and demise of public transit

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on p. 2 of your spiral.
Economics is
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Economics is the science of scarcity
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Economics is the study of scarce resources that
have alternative uses
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Economics is the study of cause and effect
relationships based on wants and resources.
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• Economics is
• the science that studies the choices of people
  trying to satisfy their wants in a world of
  scarcity

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Homework

• Review text Ch1.1 and 1.2, pgs. 4-17, as needed.
• spiral page titled Thinking Like An Economist
• p. 13 6
• p. 20 3-7 (This requires you to read p.19-20)
• p. 12 Question To Answer
• p. 18 Question To Answer
• Complete Economic Reasoning Important Terms
• As my general rule, write out questions. Answers
  must always be in complete sentences.