Lesson 1: Introduction to Economics
Objectives: Students will understand the basic terminology of economics and be able to apply the basic
concepts to real life situations.
Materials Required: Article “What do you do when you want to do everything?”
-----Text:
Today you are going to be learning about the most basic concepts of economics. This is what we will be
discussing before you actually enter into the rest of the class.
Before you continue, I want you to consider for a moment the following question:
“What do you know about economics?” Try and give this as much of a thought as possible.
Ready?
Many students give me answers that usually has something to do with “money” or “studying the
economy”. The actual definition of economics is: the study of how people use their scarce resources to
satisfy their unlimited wants. We’ll get more into what that means in the future, but you need to
understand now is that all things in this world are scarce (limited). It’s the most important concept that
you can understand in regards to economic thought.
With this in mind, let’s move forward.
Because you have some idea of what the definition of economics is, let’s discuss the Seven Basic
Assumptions Economics. These assumptions work by assuming that all things in the economy work in
conjunction with them.
1. Human wants are insatiable
a. Humans have unlimited wants. We’ll get more into this concept as we move forward in
the class, but for now, assume that people want as much as they can get. Think to your
own experiences. Is there something you want right now? Consider your favorite movie
or video game. Were you disappointed when it ended? Did you want more? This idea
follows this assumption, that all people will want more no matter what.
2. All things are scarce
a. Nothing in this universe is unlimited. If you wish, try and name something on this planet
that can never run out (other than wants). Sure, water can be recycled, but there is only
so much water. Even sunlight is a limited resource. In a few billion years, our sun will
probably either destroy us or faze out. Nothing is unlimited.
3. Optimization
a. Humans naturally optimize their situation to make the most out of their scarce
resources. Essentially, people work to get the most out of their resources with the
lowest cost to them. Consider this: have you ever multitasked before because you don’t
have enough time? Maybe you surfed the internet while also watching your favorite
show. You wanted to get the most out of your limited resource (time) so you did
multiple things at once. This applies to almost anything.
4. Voluntary trade
a. All trade must be voluntary—i.e. people must be willing to trade with each other. If
trade is not voluntary, then it is theft and for those of you who are familiar with theft, it
sucks. It leaves one party less happy than another, when trade is supposed to be
mutually gratifying.
5. Cost-benefit analysis
a. The cost-benefit analysis is the idea that we, in all our choices and actions, weigh the
costs and benefits of any decision. Generally speaking, we do this without thinking
about it. If we want something badly enough, we do it without thinking about the full
applications of the action. Sometimes, however, we do consciously make this decision.
I’m sure we have all walked into a store and thought “wow I want that, but I only have a
few bucks and I might need the money later”. We weigh the benefit of having the item
to the cost of spending for it.
6. TANSTAAFL
a. “There aint no such thing as a free lunch”. Aside from the definition of economics, this is
very much the second most important thing to understand in this class. Nothing in this
universe is free. All choices or actions have an appropriate cost with it and, remember,
not all costs have anything to do with money. For example: when you go home, you
might wash the dishes. It didn’t cost you money to do this (and in fact you might very
well get paid to do this), but it did cost you time and energy to wash dishes. Nothing in
this universe comes without a cost associated with it.
7. All variables are held constant
a. This final assumption may not make so much sense just yet. As we move forward, it will
become more applicable in what we are learning. What’s important here to understand
is that when we study economic concepts and actions, we can only assume so much.
Economics is based on observation and assumptions and there are a lot of things we can
account for.
b. With this in mind we as economists try to assume that all variables in the economy are
consistent with what we assume is going to happen. For example: If we know that CocaCola is going to raise all its drink prices by $.25, we can assume that people are going to
buy less Coke products. We assume this, without regarding other forces, such as
weather changes or rebranding by Coke. Economists try to simplify the situation the
best they can.
Closure: Keep in mind these 7 assumptions as we move forward in the class. Remember the basics: all
things are scarce, nothing is free, and human wants are unlimited. As we move forward in this class, you
will learn more and more about these concepts and continue to apply them adequately.
Assignment: Please read the article “What to do when you want to do everything” and answer the
questions that are within the article.