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ECONOMICS Powered By Docstoc
  Ms. Ingberg
Pause for a moment and consider a typical day in your life. For breakfast you
might have bread made in a local bakery with flour produced in Minnesota from
wheat grown in Kansas and bacon from pigs raised in Ohio packaged in plastic
made in New Jersey. You spill coffee from Columbia on your shirt made in Texas
from textiles shipped from South Carolina.
      After school you drive with a friend in a Japanese car on an interstate
highway system that took 20 years and billions of dollars worth of resources to
build. You stop for gasoline refined in Louisiana from Saudi Arabian crude oil
brought to the United States on a supertanker that took three years to build at a
shipyard in Maine.
      At night you call a friend vacationing in Mexico City. The call travels over
fiber-optic cable to a powerful antenna that sends it to a transponder on one of over
1,000 communications satellites orbiting the earth.
      You use or consume tens of thousands of things, both tangible and intangible,
every day: buildings, the music of a rock band, the compact disc it is recorded on,
telephone services, staples, paper, toothpaste, tweezers, soap, a digital watch, fire
protection, antacid tablets, banks, electricity, eggs, insurance, football fields,
computers, buses, rugs, health services, sidewalks, and so forth. Somebody made
all these things. Somebody decided to organize men and women and materials to
produce them and distribute them. Thousands of decisions went into their
completion. Somehow they got to you.

(Case, Karl E. and Ray C. Fair, Principles of Economics, 4th edition, 1996)
                              WHY STUDY ECONOMICS?
Excerpt from an interview with Gary Becker in The Region (June, 2002)
    “Economics is an easy subject and a difficult subject at the same time. It is easy
in the sense there are only a few principles that really guide most economic
analysis. It is simple and yet it’s obviously very difficult. I have dealt a lot with
Nobel laureates in physics, chemistry and other fields who have very strong
opinions on economic issues and usually they are terrible. These are obviously
first-class minds, but they have not given economic issues much attention. They
believe that they can casually talk about an economic issue and come up with the
right answer, that one just has to be intelligent. This is obviously not the case.
There are economic principles. If you do not use these principles, you are likely to
come to the wrong answers. . . .
    The American public are (is) frightened by economics. When you mention you
are an economist, people say they took an economics course in college and they
were terrible at it. I believe an economist should try to get people to relax over
economics, should express concepts in simple language and show how to deal with
important problems in a fairly simple way. . . .”
                                         -Gary Becker
                                           Nobel prize-winning economist (1992)
(Becker is credited with broadening the reach of economics into the spheres of crime, the
family, addiction, preference formation, and discrimination, applying the analytic tools of
microeconomics in these fields.)
Quickly jot down three decisions you
made within the last 24 hours. For each
decision, list two choices you decided
against when you made the decision.

Which CD to buy? How many hours to
study? Which movies to see? If you’re
like most people, you constantly face
decisions because you don’t have enough
time and money to do everything. At its
most basic level, economics is the study of
how people make choices when they face a
limited supply of resources. Economics
begins by investigating two basic economic
ideas: scarcity and opportunity costs.
The Economic Way of Thinking
   The Basic Economic Problem:
    (Arms Race – page 13)
    AND NEEDS exceed the LIMITED
    RESOURCES available to provide
    ALLOCATION: the process of
    choosing which needs will be
    satisfied and how much of the
    available resources will be used.
   ECONOMICS: the social science that
    deals with how society allocates its
    scarce resources among its unlimited
    wants and needs
(“The Science of Cost, Benefit, and
   OPPORTUNITY COST: the value of any
    alternative that is given up when a choice is made.
   OPPORTUNITY BENEFIT: what is gained by
    making a particular choice.
   BUDGET CONSTRAINT: the mix of goods that
    can be purchased with a limited amount of income.

   THEORY (or model): a simplified description of
   Karen’s                               Alternatives
  Decision-                 Sleep late             Wake up early to study
 Making Grid

Benefits       Enjoymore sleep                   Bettergrade on test
               Have more energy during the       Teacher and parental
               day                                approval
                                                  Personal satisfaction

Decisions      Sleep late                         Wake up early to study
                                                  for test

Opportunity    Extra study time                   Extra sleep time
Benefits       Bettergrade on test               Enjoy more sleep
forgone        Teacher and parental              Have more energy
               approval                           during the day
               Personal satisfaction
   MICROECONOMICS: examines
    individual choice concerning one
    industry, one firm, one product, or one

   MACROECONOMICS: examines
    social choice and the behavior of the
    whole economy at once.
   Picture yourself on vacation – up in the southeast Alaskan waterways
    canoeing with a group of friends. The month is June, the scenery is
    spectacular and the weather is fair. So far, it’s been good times and smooth
    sailing, but today you’ve noticed more clouds than usual and a chill in the
    air. You and your friends climb into your canoes anyway, thinking that
    even if it does rain, you’ll be able to dry off after you travel the day’s
    course and make camp. The rain comes as you expected, but it doesn’t
    stop as you had hoped. The clouds get darker, the rain begins to pour, and
    gusts of wind whip your canoe, making it almost impossible to paddle.
    You know you are in real trouble. Suddenly, a huge wave hits you canoe
    and, without warning, you capsize and find yourself thrashing about
    amidst the white caps. The next thing you know, you are frantically
    swimming toward the nearest shore. Gasping for breath and shivering
    from the icy Alaskan water, you drag yourself up onto the shore– barely
    able to believe you made it and are still alive.

   Your problem: you and your friends are stranded on a small deserted
    island and don’t know how long you will be there. The nearest settlement
    is more than 75 miles away.

   Your task: To survive.
                 Survival Activity
   Every society produces. All societies must
    decide (a) what to produce, (b) how to
    produce, and (c) how to distribute produce

       What will you make?
       How will you make it?
       Who will make it?
       What natural resources will be used?
       What tools will be used?
       Will everyone get what is produced?
       Will those who produce get the goods?
       Will the leader decide who gets what?
       Will those who do not produce get any thing?
    No society can survive without attending to all
       three fundamental economic questions.
   Upon what criteria did you base your survival decisions?
   Were your choices made randomly (by chance) or purposefully (with
   What did you consider before making your final choices?
   What seems to be most helpful for explaining the choices you made?
   Before decisions are made, a variety of alternatives are proposed and the
    costs and benefits of each choice are considered. Cost and benefits of
    alternatives influence final choices. A purposeful decision is on in
    which alternatives were considered and cost and benefits weighed.
   “People can make different choices and still make purposeful decisions.”
   “Different choices can result from purposeful choosing.”
        must be answered by all societies

 What    to produce?

 How    to produce?

 For   whom to produce?
 combination of social and individual
 decision making a society uses to
 answer the three economic

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