economics “econ, econ” econ. unit 1: basic economic concepts
Post on 31-Dec-2015
Embed Size (px)
Unit 1: Basic Economic Concepts
What is Economics?Economics is the study of _________.Economics is the science of scarcity.Scarcity means that we have unlimited wants but limited resources.Since we are unable to have everything we desire, we must make choices on how we will use our resources. choicesIn economics we will study the choices of individuals, firms, and governments.
Textbook DefinitionEconomics- Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants.In Other Words: Using what you have to get what you want.Examples: You must choose between buying jeans or buying shoes.Businesses must choose how many people to hireGovernments must choose how much to spend on welfare.
Micro vs. MacroMICROeconomics-Study of small economic units such as individuals, firms, and industries
MACROeconomics-Study of the large economy as a whole like city, state or national economies
How do we make choices?Write down five choices you have made today.
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. Thinking at the Margin
# Times Watching MovieBenefitCost1st$30$102nd$15$103rd$5$10Total$50$30
Marginal AnalysisIn economics the term marginal = additional Thinking on the margin, or MARGINAL ANALYSIS involves making decisions based on the additional benefit vs. the additional cost.For Example:You have been shopping at the mall for a half hour, the additional benefit of shopping for an additional half-hour might outweigh the additional cost (the opportunity cost). After three hours, the additional benefit from staying an additional half-hour would likely be less than the additional cost.
The MARGINAL ANALYSIS approach to decision making is more comely used than the all or nothing approach.Notice that the decision making process wasnt should I go to the mall for 3 hours or should I stay homeIn reality the decision making process started with should I go to the mall at all. Once you are there you thought should I stay for an additional half hour or should I go. Marginal Analysis
The MARGINAL ANALYSIS approach to decision making is more commonly used than the all or nothing approach.Notice that the decision making process wasnt should I go to the mall for 3 hours or should I stay homeIn reality the decision making process started with should I go to the mall at all. Once you are there you thought should I stay for an additional half hour or should I go. Marginal AnalysisYou will continue to do something until the marginal cost outweighs the marginal benefit.
Review with your neighborDefine scarcityDefine EconomicsIdentify the relationship between scarcity and choicesExplain how Macroeconomics is different than MicroGive an example of marginal analysisName 10 Disney movies
Paul Solman Video: Opportunity Lost
Econ in MusicThe Clash Should I Stay or Should I go*What concept is discussed in the song?What is Marginal Analysis?What is the opportunity cost?Are there any marginal benefits?
Economic GoalsWhat is a good economy?GoalsEfficiency
4 Main Goals of an EconomyEconomic Growth produce more and better goods and servicesFull Employment provide jobs for anyone WILLING to workPrice Stability Avoid inflation or deflationEconomic Efficiency Make best use of available resources
Allocative Efficiency*Productive Efficiency Producing goods and services in the least costly way
Allocative Efficiency Producing goods wanted by society
Quantity vs. Quality
Social Economic GoalsEconomic Freedom Everyone has freedom to do what they wantEqual Distribution of Wealth none too rich or too poorEconomic Security Providing disabled with means of earning incomeBalance of Trade Balance with the rest of the world*
Services = actions or activities that one person performs for another (teaching, cleaning, cooking) Goods = physical objects that satisfy needs and wantsGive examplesGoods vs. Services*Luxury = goods and services that are not considered essentialNecessity = goods and services that are considered necessary in a particular market
Types of GoodsConsumer Goods- created for direct consumption (example: pizza)
Inferior Goods-purchase less when your income increases Used cars, generic brands, SpamNormal Goods- purchase more when your income increasesMost goods and services Capital Goods- created in order to increase production (oven, blenders, knives, etc.)Goods used to make consumer goods
The Clash sings about the angst of decision making in their song Shall I Stay or Should I Go? Economic theory states that rational decision makers weigh the marginal benefit one receives from an option with its marginal cost, including the opportunity cost. The lyrics give us a rough assessment of the costs (If I go there will be trouble, and if I stay it will be double). However, little is mentioned regarding the marginal benefit. In fact, the singer tells us that he needs additional information (Darling you gotta let me know) and fears that he must make a decision under conditions of imperfect information.Speculate on what the marginal benefits and the marginal costs might be for staying and going. What are the opportunity costs? How does knowing that the cost of staying is double influence the decision? Is the singer being a rational decision maker attempting to make a decision under conditions of uncertainty, or is he irrational, unclear of his preferences, and waiting for someone else to make the decision for him? Stay? Go?