What is Economics About?

What is Economics all About?

• Economics is the study of how individuals and societies use their scarce productive resources to obtain goods and services.

Every Society has…

• Productive Resources– Natural

• Not produced by people (ex. Land, oil, minerals, etc.)

– Human• Work effort both physical and mental

– Capital• Man – made items such as tools, machinery and

factories

Which are used to produce…

• Goods and Services

However, because we have…

• unlimited human wants and

• limited productive resources and therefore, goods and services, there is…

• scarcity

• Because we have scarcity we must make choices...– Trade offs, opportunity cost, incentives…

Three Basic Economic Questions

• WHAT goods and services will be produced?

• HOW will the goods and services be produced?

• WHO will consume the goods and services?

This Creates the need for an…

• Economic system– Decentralized

• Market• Private industry based

– Centralized• Command• High government control

Basic Economic Problem

• Every society must decide how to make the best use of its limited productive resources. – Scarcity, with the resulting need to choose

among competing alternatives, is the basic economic problem.

Why doesn't everyone drive a Lexus?

Why don’t you eat pizza for lunch every day?

Why don’t you take economics for all four years?

Scarcity

• DEFINITON: The condition in which our wants are greater than the resources available to satisfy those wants.

• The basic problem of economics is figuring out how to allocate our scarce resources.

What are some other scarce resources?

Consequences of Scarcity

• Who gets the resources?• Rationing device: a means for deciding who gets

what portion of the available resources and goods.– Alphabetical?– Performance based?– Auction (willingness and ability to pay)– Lottery– Characteristics– Need– Command– 1st come, 1st serve

Consequences of Scarcity

• Competition– People will compete for scarce resources

• Jobs• Education (getting into college)• Starting position in a sport – lead chair in orchestra• Tickets for a game…super bowl!• American Idol

Opportunity Cost

• DEFINITION: An opportunity cost is the most highly valued opportunity or alternative forfeited when a choice is made.

• It is what you give up in order to get something.

↑ the opportunity cost = you will do LESS of it

↓ the opportunity cost = you will do MORE of it

What is the opportunity cost to you for 10 downloads?

What is the opportunity cost to you for being at school by 7:25 a.m.?

What is the opportunity cost of building a Vikings Stadium on the

TCAAP site?

A. The noise and traffic it would generate.

B. The ability to build something else on the same site.

C. The cost of a ticket to attend a game.

D. The closing of the Metrodome.

What is the opportunity cost for going to college right after high

school?A. The money you could

make working right away.

B. The chance to travel the world.

C. A career playing pro-basketball in Spain.

D. The ability to live rent-free at home.

Economic Way of Thinking

• In order to make choices, we constantly consider COSTS vs. BENEFITS

• What are the costs vs. benefits of going to the Ice Age dance?

• What are the TRADE – OFFS?– trade offs = more of one thing mean less of

something else

Thinking in terms of Trade - Offs

• Question: How can we stop pollution?

• Solution: Ban ALL cars that pollute

• Trade – offs for cleaner air/ environment, etc.– Less driving– Harder to get “stuff”– No more NASCAR

Thinking in terms of Trade - Offs

• Question: How can we improve schools?

• Solution: More government tax dollars

• Trade – offs for better schools– Less money for defense– Less money for highways– Higher taxes

Which would you prefer?

A. a million dollars in gold coins

B. a million dollars in Microsoft stock

C. a million dollars in $100 bills

Put these economic sentences into correct order

A. When making choices we face trade offs

B. Because we have scarcity we must make choices

C. After we make choices, we experience (incur) opportunity costs

D. Because we have unlimited wants, we have scarcity

Review

• Auction activity