Let’s Learn Some ECON
Don’t try to write down everything I say
Lectures will be fast-paced with lots of information and lots of interaction
Pay attention and get involved
As the week ends, it will come together
You can have all of these slides and materials
Economics for Leaders

Shining Students
Each morning I will award a prize to one or two students who shined the day before
If you want to win then you need to be alert, engaged and participate in a meaningful way
Let’s have some FUN!
Post-Test at the end of the week (80%)**
Economics for Leaders

Joke of the Day
At the end of the day, always remember…

Joke of the Day
You can tune a piano, but…

Joke of the Day
You can’t
TUNA FISH!

Joke of the Day

Hypotheses for the Week
Human Prosperity and social cooperation develop spontaneously in societies that protect property rights and encourage voluntary trade/exchange.
Developing an economic way of thinking empowers people to understand and explain the world in which we live.
Economics for Leaders

Why are some countries rich and others poor?

Why do we care?

Economic Reasoning Principle #5:
Understanding based on knowledge and evidence imparts value to opinions.
Opinions matter and are of equal value at the ballot box. But on matters of rational deliberation the value of an opinion is determined by the knowledge and evidence on which it is based.
Statements of opinion should initiate the quest for economic understanding, not end it.
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The Rules of the Game
Institutions & Norms
The rules of the game shape how decisions are made.
Decisions determine outcomes.
People respond to incentives in predictable ways.
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Scarcity
Something is scarce if society cannot have all it wants at no cost.
By cost we mean OPPORTUNITY COST.
Some things are more scarce than others.
Relative scarcity is determined by what must be given up.
Economics for Leaders

Choices
Because the world is characterized by scarcity, we are forced to make choices.
We must allocate scarce resources among competing uses.
Wood that is used for tables and chairs cannot be used for crutches (or forest).
Land that is kept undeveloped cannot be used to build housing for the poor.
Time
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Opportunity Cost
Because we are forced to make choices
(scarcity), we are faced with costs.
The cost of any choice is what is given up.
Choosing is REFUSING!
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Choosing Between Alternatives
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Do You Want to Trade?
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Do You Want to Trade?
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Economic Reasoning Principle #1:
People choose, and individual choices are the source of social outcomes.
Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and benefits of the alternatives.
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Economic Reasoning Principle # 2:
Choices impose costs; people receive benefits and incur costs when they make decisions.
The cost of a choice is the value of the nextbest alternative foregone, measurable in time or money or some alternative activity given up.
What did you give up to be here?
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choices → TRADE-OFFS → forgone alternatives
OPPORTUNITY COST!
choosing is REFUSING!
the cost of something is what you give up.
OPPORTUNITY COST!
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Economic Reasoning Principle # 3:
People respond to incentives in predictable ways.
Choices are influenced by incentives, the rewards that encourage and the punishments that discourage actions. When incentives change, behavior changes in predictable ways.
People do what makes them better off.
Marginal Benefit, Marginal Cost (MB > MC).
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Choosing Between Alternatives
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Do You Want to Trade?
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Do You Want to Trade?
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A Fact Regarding Benefits
The benefit (value) of the next one will eventually be lower.
Diminishing marginal benefit (value).
Value is based on benefit received.
Rolos, Washing machines, automobiles, houses, vacations.
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Which is more realistic?
Production Possibilities Frontier (PPF): Graphical representation of the possible goods/services an economy can produce at a given time with the available resources and technology

A Fact Regarding Costs
The cost of the next one will eventually be higher.
Rising marginal cost.
Cost is based on what is given up.
Wheat vs. Oranges, work, vacations, China and India growing economies
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Choose Between Alternatives
Do it if……
MB > MC
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Big Ideas choices → TRADE-OFFS → forgone alternatives
OPPORTUNITY COST!
choosing is REFUSING!
the cost of something is what you give up.
OPPORTUNITY COST!
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Why can’t we have all we want?

Big Ideas
People do things that make them better off.
Diminishing marginal value (benefit).
Rising marginal cost (opportunity cost).
The rules of the game shape how decisions are made.
Decisions determine outcomes.
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Choosing Between Alternatives

Quote From Thomas Sowell
"What is YOUR solution?“
"There are no solutions," I said. "There are only trade-offs.“
"The people DEMAND solutions!" she shot back angrily.
The people can demand square circles if they want. But that doesn't mean that they will get them.
Opportunity Cost!
Economics for Leaders