ECONOMICSECONOMICSWhat is it?

on p. 2 of your spiral….

Economics is …

pg. 4 spiral Economic Reasoning Important Terms

word definition imagescarcity

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 Scarcity = Wants › Resources› Resources

“None of us can have as much as we want of everything we want”

--Oliver Wendall Holmes

What are wants????

Scarcity is the condition where our wants are greater than our resourcesScarcity is the condition where our wants are greater than our resources

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 utility or satisfactionor satisfaction

• something that provides utility is asomething that provides utility is a goodgood» disutilitydisutility……badbad

• What are resources?

Scarcity = Wants › ResourcesScarcity = Wants › 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 benefits › costs› costs

Choice Opportunity Cost 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

• Record 3 decisions you have recently made.

• Next to each, record the opportunity cost.

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 itIncrease opportunity cost do less of it

Decrease opportunity cost do more of itDecrease opportunity cost do more of it

Increase the Opportunity Cost-Do Less of It

Decision

Eat at Jack-In-The-Box

You’ll do less of this.

Opportunity Cost

Eat at Mc Donald’s High Opportunity

Cost▪ MacDonald’s reduces

prices▪ More choices added

at Mickey D’s▪ Certified Cleanest

Fast Food Restaurant in SD County

I’m hungry. What should I do?

Decrease opportunity cost – Do More of it

Decision

Eat at Jack-In-The-Box

You’ll do more of this.

Opportunity Cost

Eat at McDonald’s Low Opportunity

Cost▪ McDonald’s raises

prices▪ Only serves

strawberry shakes▪ E. Coli outbreak

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

1:47

Prague

2:20

Scarcity Rationing Device • Because there is scarcity there must be a

rationing devicerationing 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 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

• Has anything ever turned out differently than you intended?

Unintended Effects

intended

action effectspositive

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 As my general rule, write out questions. Answers must always be in complete sentences.must always be in complete sentences.