Welcome to Econ 1
Otherwise known
as
Principles of
Microeconomics
Why is Economics worth your
valuable time and money to learn?
Why is Economics worth your
valuable time and money to learn?
What is economics about?
What is the definition of economics?
We only learned one thing
today ….
Economics is the study of how a
society allocates scarce resources to
satisfy unlimited wants.
So you have no excuse not to know it.

Welcome to Day 2
Principles of
Microeconomics
Quiz today?
Magic 8 ball says ….
Write your name, class day and
time, and Quiz #1 at the top of
your paper.
Define Economics
Your answer should start
“Economics is the study of …”
This question is worth 2 points.
And what’s the answer?
1. The definition of economics:
How a society allocates scarce
resources to satisfy unlimited
wants.
Because of scarcity, everything has an
opportunity cost.
Opportunity cost is the best
alternative given up when a choice is
made.
Sometimes the opportunity cost is
represented by money.
What do you want for
your 40 bucks?
or
Sometimes the opportunity cost
is not money. Often it is time.
or
or
Sometimes it is even the chance of
your death.
99.9999%
.0001%
The world as economists see it is
one of continually comparing costs
versus benefits.
Should you go to college?
What is the opportunity cost of
taking this class?
Tuition = $46 X 3 units = $138
Textbook = $100
Tuition + textbooks = $238
Is this the full cost?
Don’t forget time!
or
or
Let’s assume 50 hours in class and 50
hours study time over the next 15
weeks that could be spent on a
minimum wage job.
100 hours at $8 an hour = $800 dollars
income given up by choosing to take
this class.
The biggest cost for most of you for
coming to Bakersfield College is the
value of your time given up.
Tuition and textbooks = $178
Time = $800
Total cost = $978
Is this class worth $978?
If college tuition and textbooks
were free, could everyone afford to
go?
Tuition - Free
Textbooks - Free
Rent - ?
Food - ?
Clothes - ?
Assume you either start working at
a full –time minimum wage job at
age 19 or get an A.A. and start
working at a job that pays 20%
more at age 21. Also assume
$5,000 in tuition/textbook costs.
How long until college pays for it
self?
19 yrs old
21 yrs old
24 yrs old
29 yrs old
34 yrs old
H.S. Dip
$0
$32,000
$80,000
$160,000
$240,000
A.A
$0
-$5,000
$52,600
$148,600
$244,600
Getting an A.A. pays for itself by the
early 30s.
What about a B.A.? Cal State
Bakersfield estimates $6,682 a year
tuition and fees and let’s say $4,000 in
textbooks over the 4 years. Total costs
to get the B.A. = $30,728. Assume a
B.A. recipient makes 60% more.
19 yrs old
23 yrs old
29 yrs old
34 yrs old
H.S. Dip
B.A.
$0
$0
$64,000 -$30,728
$160,000 $122,872
$240,000 $250,872
Again, college pays for itself
in the early 30s.
57% of Americans 25 and over have
some college and 41% have an A.A. or
higher. We are split down the middle
between college and noncollege
people.
What factors affect if someone goes to
college or not?
Study abroad at Virginia Tech …
Tai Gui Le! - Kristen Mankosa
“In the US, when you see a price tag,
end of story. In China, price tags can
be just the beginning. Here are my 5
best tips on how to score the biggest
deals…
1. Never act excited.
2. Cut the price in half, then half it
again.
3. You’re not stealing their money.
4. Don’t be afraid to walk away.
5. Shop Around.”
A partner in a top Wall Street law firm
can charge $1000 an hour = $16.67 a
minute. Does he really want to stand
around arguing over his taxi fare?
Wages Per Minute
Top Wall Street lawyer = $16.67
American average = $0.36
Mexican Average = $0.05
Chinese Average = $0.045
What do Americans bargain over?
Coupons are America’s bargaining.
The same opportunity cost reasoning
explains why people may turn down
“free” money by not picking up a
penny.
Even when human life is at stake?
What should the speed limit be?
Gas and lives saved benefits versus
additional time on the road loss.
Source – Seat Belt Laws and Why We
Should Keep Them, Richard Alsop, etc.
Sometimes you can trade
money for time.
That’s
what
scalpers
are for.
Get the VIP Treatment
At Disneyland
“Our hosts booked the Premium VIP Tour
($295 per hour; $275 in the off-season),
which includes “limited expedited
boarding.” Guests who book the Premium
VIP tour can use the Fastpass entrance at
every attraction that offers that service,
and have "preferred access" to more than
a dozen other attractions …”
Rich Manhattan moms hire handicapped tour guides so kids can cut
lines at Disney World – May 14, 2013
They are 1 percenters who are 100
percent despicable. Some wealthy
Manhattan moms have figured out a
way to cut the long lines at Disney
World — by hiring disabled people to
pose as family members so they and
their kids can jump to the front, The
Post has learned.
The “black-market Disney guides” run
$130 an hour, or $1,040 for an eighthour day “My daughter waited one
minute to get on ‘It’s a Small World’ —
the other kids had to wait 2 1/2
hours,” crowed one mom, who hired a
disabled guide through Dream Tours
Florida.
“You can’t go to Disney without a tour
concierge,’’ she sniffed. “This is how
the 1 percent does Disney.”
The woman said she hired a Dream
Tours guide to escort her, her husband
and their 1-year-old son and 5-yearold daughter through the park in a
motorized scooter with a
“handicapped” sign on it.
The group was sent straight to an
auxiliary entrance at the front of
each attraction.
Disney allows each guest who
needs a wheelchair or motorized
scooter to bring up to six guests to
a “more convenient entrance.”
Ryan Clement runs Dream Tours
Florida with girlfriend Jacie Christiano,
whom the rich Manhattan mom
indicated was her family’s guide.
A working phone number for
Christiano couldn’t be found, and
Clement refused to put The Post
through to her. A message left on
Facebook was not immediately
returned by Christian.
Clement denied that his gal pal
uses her disability to bypass lines.
He said she has an auto-immune
disorder and acknowledged that
she uses a scooter on the job.
Disney did not return repeated
requests for comment.”
What we learned today.
1. Opportunity cost is the best
alternative given up when a choice
is made.
2. Economists both explain and
advise human behavior by
comparing benefits to costs.
3. Opportunity costs can include
money, time, chance of death, effort,
or just general unpleasantness.
4. Examples of decisions that can’t be
properly understood without
understanding opportunity cost are
going to college, speed limit laws, why
some country’s shoppers bargain
more, and behavior at Disneyland.
Homework
1. Know the definition of
opportunity cost.
2. Understand how it applies to
the examples discussed in class.
3. Read all of chapter 1 in the
textbook.
Welcome to Day 3
Principles of
Microeconomics
Quiz today?
Magic 8 ball says ….
Building Our First Model
The Production Possibilities
Frontier Model or PPF Model
How much can we produce from our
four factors of production?
1. Labor
2. Machines and Factories - Capital
3. Natural resources
4. Technology
Suppose the only two things we know
how to make are bushels of wheat and
aircraft carriers.
Point
A
B
C
D
E
Carriers
4
3
2
1
0
Wheat
0
10,000
20,000
30,000
40,000
What is the opportunity cost of the
first aircraft carrier? … Of the second
carrier? … Of two carriers?
Point
A
B
C
D
E
Carriers
4
3
2
1
0
Wheat
0
10,000
20,000
30,000
40,000
Production Possibilities Frontier
Diagram
4.5
A
Aircraft Carriers
4
3.5
B
3
C
2.5
2
D
1.5
1
E
0.5
0
0
10000
20000
30000
Bushels of Wheat
40000
50000
Production Possibilities Frontier
Diagram
4.5
A
Aircraft Carriers
4
3.5
B
3
C
2.5
2
D
1.5
1
E
0.5
0
0
10000
20000
30000
Bushels of Wheat
40000
50000
PPF Diagram lines always slope
down because the opportunity
cost of producing more of one
thing is producing less of
something else.
But are they always straight lines?
You are the ruler of a kingdom of 4 people.
These 4 people can make 2 things for you:
butter and calculators.
Amy
Bart
Carla
David
Calculators
5
5
3
2
Butter (lbs)
12
3
5
2
If you want 5 calculators made, who is the
best person/people to transfer?
Transfer Amy and get 5 calculators for
12 pounds of butter lost.
Transfer Bart and get 5 calculators for
3 pounds of butter lost.
Transfer Carla and David together and
get 5 calculators for 7 pounds of butter
lost.
Calculators Butter
Amy
Bart
Carla
David
5
5
3
2
12
3
5
2
Lbs butter lost
per calculator
(lbs) gained
12/5 = 2.4
3/5 = 0.6
5/3 = 1.67
2/2 = 1.0
What is the best order to move these
people from butter to calculator
production?
Comparative Advantage
The situation in which a person or
economy has a lower opportunity cost of
producing a good than other potential
producers.
Production Possibilities Frontier
Diagram
16
A
14
Calculators
12
B
10
C
8
6
D
4
2
E
0
0
5
10
15
Pounds of Butter
20
25
You are the ruler of a country that
makes wheat and aircraft carriers.
Who is the best type of person to
transfer from farming to ship building?
A lawyer can type faster than her
secretary. Should she type her
own letters?
The Law of Increasing Opportunity
Cost
The more of a good already being
produced, the greater the cost of
making one more.
All PPF diagrams have PPF lines
that slope down. PPF diagrams
with increasing opportunity cost
have PPF lines that bow out.
This is the default case for this
class.
Production Possibilities Frontier
Diagram
4.5
Aircraft Carriers
4
A
B
3.5
3
2.5
C
2
D
1.5
1
0.5
E
0
0
5000 10000 15000 20000 25000 30000 35000 40000 45000
Bushels of Wheat
Can we be at point Z?
4.5
Aircraft Carriers
4
A
B
3.5
3
2.5
C
2
Z
1.5
1
0.5
D
E
0
0
5000 10000 15000 20000 25000 30000 35000 40000 45000
Bushels of Wheat
Can we be at point Z?
Yes – Two Ways
1. Unemployed resources
(macroeconomics)
2. Inefficient use of resources
(microeconomics)
Building a carrier in Maine by ship
builders costs 3,000 bushels of wheat
given up. That moves us from point E
to D.
Building a carrier in Kansas by farmers
costs 20,000 bushels of wheat. That is
the move from B to A.
If we build our first carrier in Kansas by
farmers, we go from point E to Z.
4.5
A
Aircraft Carriers
4
B
3.5
3
C
2.5
2
1.5
Z
1
0.5
D
E
0
0
5000 10000 15000 20000 25000 30000 35000 40000 45000
Bushels of Wheat
An economy is producing
efficiently when it is impossible to
make more of one thing without
making less of something else.
An economy is producing
inefficiently when it is possible to
make more of one thing without
making less of something else.
Two simple rules:
1. All efficient points are on the
PPF line.
2. All inefficient points are
inside/under the PPF line.
Production efficiency is achieved
when maximum advantage is taken
of specialization in resource use.
Specialization is using resources to
produce the good in which they
have a comparative advantage.
The textbook mentions the
comparative advantage the U.S.
has with Hong Kong in agriculture.
We sell them $1,912 million worth
of nuts, meat, and fruit.
They sell us $11 million worth of
snack foods (including chocolate).
Are efficient points necessarily
better than inefficient ones?
4.5
A
Aircraft Carriers
4
B
3.5
3
C
2.5
2
1.5
Z
1
0.5
D
E
0
0
5000 10000 15000 20000 25000 30000 35000 40000 45000
Bushels of Wheat
Points B, C, and D are necessarily
better than point Z.
Points A and E may be better, but
also may be worse.
1. Not every efficient point is
necessarily better than every
inefficient point.
2. For every inefficient point, there
are always some efficient points
that are better.
To know which points have to be
better than Z, draw a line straight up
and straight out. All points in the
“piece
of
pie”
have
to
be
better.
4.5
A
Aircraft Carriers
4
B
3.5
3
C
2.5
2
1.5
Z
1
0.5
D
E
0
0
5000 10000 15000 20000 25000 30000 35000 40000 45000
Bushels of Wheat
Remember positive statements and
normative statements from your
readings in chapter 1?
Positive statements are factual
statements.
Normative ones are value judgments.
1. C has more stuff than Z.
2. More stuff is better.
3. Therefore, C is better than Z.
Is more stuff better?
Buddha - "If a man has conquered greed nothing
can limit his freedom.“
"There is no fire like greed."
Jesus - "It is easier for a camel to go through the
eye of a needle than for a rich man to enter the
kingdom of God."
"For the love of money is the root of all evil."