ECONOMICS
What is it?
on p. 2 of your spiral….
Economics is …
pg. 4 spiral Economic Reasoning Important Terms
word definition image
scarcity
tangible
•intangible
resources
opportunity cost
rationing device
trade-off
constraints
marginal
utility
good
Economic Reasoning
An Economic Way of Thinking
Reference Chapter 1.1-2
Scarcity
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????
Economists claim that wants are unlimited.
Do you agree? Why/why not?
• tangible • intangible
Philosophers have confronted the
unlimited nature of human wants
Wants
• anything that gives us utility or satisfaction
• something that provides utility is a good
» disutility…bad
Scarcity = Wants › Resources
• What are resources?
Resources
• what’s needed to produce a good or service
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
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
You can incur an opportunity cost
without spending any money.
• Give an example….
Let’s Make a Deal!!!
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
• When you forgo doing homework to get on
Facebook, your opportunity cost for getting
on Facebook was your homework.
• Your choice. Your opportunity cost
Is the opportunity cost for attending
high school the same for all
students?
Changes in opportunity costs
change behavior
Increase opportunity cost do less of it
Decrease opportunity cost do more of it
Increase the Opportunity Cost-Do Less of It
I’m hungry. What should I do?
Decision Opportunity Cost
Eat at Jack-In-The-Box Eat at Mc Donald’s
High Opportunity Cost
▪ MacDonald’s reduces
You’ll do less of this. prices
▪ More choices added at
Mickey D’s
▪ Certified Cleanest Fast
Food Restaurant in SD
County
Decrease opportunity cost – Do More of it
Decision Opportunity Cost
Eat at Jack-In-The-Box Eat at McDonald’s
Low Opportunity Cost
▪ McDonald’s raises prices
▪ Only serves strawberry
You’ll do more of this.
shakes
▪ E. Coli outbreak
The Global Economy
Employment
• Benefit : wages • Opportunity Cost = Time
– per unit of time Leisure Forfeited
• Opp.Cost of a Big Mac (1994)
New York Sydney Hong Kong Singapore London
26 min. 26 min 28 min. 35 min 36 min
Brussels Paris Tel Aviv Rio Prague
36 min. 38 min 53 min. 1:47 2:20
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.
Rationing device
Scarcity Competition
• Because there is scarcity, we can infer
there will be competition
More Ways to Think Like an
Economist
• trade-offs
• decisions made on the margin
• unintended consequences
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.
Choices made on the margin
Marginal 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
• Has anything ever turned out differently
than you intended?
Unintended Effects
intended
action effects
positive
unintended
negative
• Pollution
• Rent control laws
• Interstate highway
and demise of public
transit
on p. 2 of your spiral….
Economics is …
Economics is the science of scarcity
Economics is the study of scarce resources
that have alternative uses
Economics is the study
of cause and effect relationships
based on wants and resources.
Economics is …
the science that studies the
choices of people trying to
satisfy their wants in a world
of scarcity
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.