Day 2
EQ: What is scarcity?
Agenda:
-Voc. quiz
-Collect signed syllabus
-Q & A about the course
-Lecture
Homework:
- Complete Activity 2
- Next 6 terms on flashcards
-create personal pie chart
Today’s Quiz
1.Economics.
2.Scarcity
3.Macroeconomics
4.Microeconomics
5.Consumers
6.Producers
Scarcity
UNIT I: BASIC ECONOMIC
CONCEPTS
Length: 23 Days
Chapters: 1-3
I WON THE LOTERY!
Now what do I do?
The 10 Principles of Economics
How People Make Decisions:
1.
2.
3.
4.
People Face Tradeoffs
The Cost of Something is What You Give Up to Get Something
Rational People Think At the Margin
People Respond to Incentives
How People Interact:
5. Trade Can Make Everyone Better Off
6. Markets Are Usually a Good Way to Organize Economic Activity
7. Governments Can Sometimes Improve Market Outcomes
How The Economy As A Whole Works:
8. A Country’s Standard of Living Depends on its Ability to Produce Goods and
Services
9. Prices Rise When the Government Prints Too Much Money
10.Society Faces a Short-Run Trade-off between Inflation and Unemployment
WHAT IS ECONOMICS IN GENERAL?
• Economics is the science of scarcity.
• Scarcity is the condition in which our wants are
greater than our limited resources.
• Since we are unable to have everything we
desire, we must make choices on how we will
use our resources.
• In economics we will study the choices of
individuals, firms, and governments.
Economics is the study of _________.
choices
SCARCITY MEANS THERE IS NOT ENOUGH FOR
EVERYONE
Government must step in to help allocate resources
Examples:
You must choose between buying jeans or buying
shoes.
Businesses must choose how many people to hire
Governments must choose how much to spend on
welfare.
Economics Defined
Economics-Social science concerned with the
efficient use of limited resources to achieve
maximum satisfaction of economic wants.(Study
of how individuals and societies deal with
scarcity
______)
MICRO VS. MACRO
Micro Examines:
Macro Examines:
Individual markets
International trade
the behavior of firms (companies) and
consumers
National markets
the allocation of land, labor and capital
resources
Total output and income of nations
Supply and demand
Total supply and demand of the nation
The efficiency of markets
Taxes and government spending
Product markets
Interest rates and central banks
Profit maximization
Unemployment and inflation
Utility maximization
Income distribution
Competition
Economics growth and development
Resource markets
Market failure
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs
All decisions involve tradeoffs. Examples:
Going to a party the night before your midterm leaves less time for studying.
Having more money to buy stuff requires working longer hours, which leaves less time for
leisure.
Protecting the environment requires resources that could otherwise be used to produce
consumer goods.
HOW PEOPLE MAKE DECISIONS
Principle #1: People Face Tradeoffs
Society faces an important tradeoff:
efficiency vs. equity
efficiency: getting the most out of scarce resources
equity: distributing prosperity fairly among society’s
members
Tradeoff: To increase equity, could redistribute income
from wealthy to poor.
But this reduces incentive to work and produce,
shrinks the size of the economic “pie.”
HOW PEOPLE MAKE DECISIONS
Principle #2: The Cost of Something Is What You
Give Up to Get It
Making decisions requires comparing the costs and benefits of alternative choices.
The opportunity cost of any item is
whatever must be given up to obtain it.
It is the relevant cost for decision making.
WHAT IS YOUNG RANDY’S OPPORTUNITY COST IN
THIS PICTURE?
The Trade-off was 1 brunette for one blonde
HOW PEOPLE MAKE DECISIONS
Principle #2: The Cost of Something Is What You
Give Up to Get It
Examples:
The opportunity cost of…
…going to college for a year is not just the tuition, books, and fees, but also the foregone
wages.
…seeing a movie is not just the price of the ticket, but the value of the time you spend in the
theater.
PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE
MARGIN.
Marginal changes-In economics the term marginal = additional
People make decisions by comparing costs and benefits at the margin.
The decision to choose one alternative over another
occurs when that alternative’s marginal benefits
exceed its marginal costs!
THINKING AT THE MARGIN
# Times
Watching Movie
Benefit
Cost
1st
2nd
3rd
Total
$30
$15
$5
$50
$10
$10
$10
$30
Would you see the movie three times?
Notice that the total benefit is more than the
total cost but you would NOT watch the movie
the 3rd time.
Principle #4: People Respond to
Incentives
Basketball star LeBron
James understands
opportunity costs and
incentives. He chose to
skip college and go
straight from high school
to the pros where he
earns millions of dollars.