Econ Course Overview

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Econ Course Overview

•  I.Fundamentals of Economic Thought
•  
• A different way of thinking about choices
•  

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Econ Course Overview

• II.Microeconomics
• -The study of the economic behavior and
  decision-making of small units, such as
  individuals, families, and businesses.
• -(Prices of single items, markets, business
  decisions)

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Econ Course Overview

• III. Macroeconomics
• -The study of the behavior and decision making of
  entire economies.
• -(unemployment, inflation, production of a
  country, international trade)

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Why Study Economics?

1. Literacy
2. Explanations and understanding of markets,
   prices, behavior
3. Improve decision-making skills
4. Improve critical thinking
5. Solve problems

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Fundamentals of Economics
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Unit One Fundamentals

• Guiding Question
• How can economics help us make better decisions?

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Fundamentals of Economics

• True or False?
• The best things in life are free

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Economics

• The study of how individuals and societies try to
  satisfy wants and needs by choosing how to use
  scarce resources.

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What resources do we have?

• Resources are anything we can use to attain our
  wants and needs.

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Introductions

• Name
• One want (appropriate)
• Anything else?

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What are the differences between wants and needs?
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Scarcity

• Fundamental economic problem facing all societies
  that results from a combination of limited
  resources and peoples virtually unlimited wants.
• We cant have everything
• we want

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How do people deal with scarcity?

• Scarcity forces us to choose
• We cant avoid making choices about resource use

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True or false?The best things in life are
free.
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True or false?The best things in life are
free.When we consider scarcity, are the best
things in life really free?
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Reading Naked Econ, pp.4-9

1. Select 3 phrases and be able to explain your
   thoughts.
2. Write one question you have related to the
   reading.
3. Discuss with the person sitting next to you.

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Homework

• What are your economic concerns right now?
• What work experiences do you have?
• Where do you see yourself in 5 years?
• What are your interests?
• What do I need to know about you?
• Answer all questions, typed and double-spaced.

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How do we make choices?
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The Rational Actor Model

• AKA-Homo-economicus or economic man

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The Rational Actor Model

• Assumptions
• Humans are self-interested (not selfish, but act
  in ways consistent with our preferences)
• Humans are rational (can choose behavior
  appropriate to achieve goals)

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Are we rational?

• A 20 toaster is on sale for ½ price across town.
  Would you go buy it?
• An oven that sells for 500 at a nearby store is
  on sale for 490 across town. Which would you
  buy?

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How do rational people make choices?
But costs and benefits are not always so easy to
see!

• Cost-Benefit Analysis
• Process of making choices by carefully weighing
  costs and benefits.

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How do people make choices?

• People try to maximize benefits and minimize
  costs

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Utility

• Utility is simply happiness or satisfaction
• People try to make good decisions in order to
  increase utility

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How do people make choices?
How can I maximize my utility?

• We try to make decisions that give us the
  greatest utility
• both short and long term

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Can you obtain utility from money?

• People value things differently due to different
  preferences
• 56 of employees would rather have an extra week
  of vacation than an extra week of
  pay. (CNNMoney.com)

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Summary

• Summarize what we have just learned by writing a
  sentence using the vocab words.

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Summary

• In a world of scarcity, rational actors attempt
  to maximize utility by carefully weighing the
  costs and benefits of their decisions.

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Choices

• How can we make better choices?

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Cost Benefit AnalysisCosts and Benefits of a
High School Diploma
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Cost Benefit AnalysisCosts and Benefits of a
High School Diploma

• Costs

• Benefits

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Average Earnings by Highest Degree Earned 2002
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Choices

• Cost benefit analysis
• A decision is economically efficient if the
  benefits outweigh the costs

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Recognize Trade-offs

• We make trade-offs when achieving one thing
  requires sacrificing something else.

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Trade-offs

• Example Spending a little more time studying
  means you sacrifice watching t.v., talking on the
  phone, and listening to the Spice Girls

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Trade-offs

• Example Hitting the snooze button involves
  sacrificing time to do your hair, eat breakfast,
  being in class, etc.

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Trade-offs

• Example Building a new wing onto RV means
  giving up computers, books, parking lots,
  basketball courts, etc.

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• True or False
• There is no such thing as a free lunch

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• There is no such thing as a free lunch
• Any choice involves trade offs
• Any choice costs you the opportunity to do
  something else

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Opportunity Cost

• The most desirable alternative given up as the
  result of a decision.
• Opportunity cost is what you would have done if
  you didnt do what you did do.

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Opportunity Cost

• Opportunity cost is the runner-up in the choice
  contest. 
• I chose to _________, therefore, I couldnt
  _____________.

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Video Time!
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Reflection

• What part of the reading was most interesting to
  you?
• What do you agree or disagree with and why?
• Did you gain any insights? Explain.

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Key Learnings

• 1. Scarcity is the fundamental problem of
  economics. (limited resources and unlimited
  wants)

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Key Learnings

• 2. Scarcity forces us to choose.

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Key Learnings

• 3. Rational actor model claims that humans are
  rational and self-interested.

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Key Learnings

• 4. Humans weigh costs and benefits in order to
  maximize utility.

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Key Learnings

• 5. An action is economically efficient as long
  as the benefits outweigh the costs

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Homework

• Health is our most precious asset. We have no
  choice but to preserve it.
• Write a one-paragraph response explaining what is
  wrong with this quote (20 points)

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True or False?

• Going to college during an economic recession is
  cheaper than going to college during an economic
  boom.

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• True or False?
• Attending economics class is the best use of your
  time.

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Key Learnings

• 1. __________is the fundamental problem of
  economics. (limited _________and
  unlimited________)

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Key Learnings

• 2. Scarcity forces us to____________.

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Key Learnings

• 3. Rational actor model claims that humans are
  ___________and self-interested.

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Key Learnings

• 4. Humans weigh costs and benefits in order to
  maximize_________.

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Key Learnings

• 5. An action is economically ________as long as
  the benefits outweigh the costs

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Key Learnings

• 6. The most attractive alternative sacrificed
  when a choice is made is called _________ _____.

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Opportunity Cost

• The most desirable alternative given up as the
  result of a decision.
• Opportunity cost is what you would have done if
  you didnt do what you did do.

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Opportunity Cost

• Opportunity cost is the runner-up in the choice
  contest. 
• I chose to _________, therefore, I couldnt
  _____________.

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How do rational people make choices?
But costs and benefits are not always so easy to
see!

• Cost-Benefit Analysis
• Process of making choices by carefully weighing
  costs and benefits.

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• You are very excited to go see your favorite band
  tonight and you already bought your ticket.
  Suddenly, your best friend calls to tell you of a
  great party going on tonight. You cannot attend
  both and you cannot sell your concert ticket.
• Would it be economically efficient to go to the
  party even if youve already bought a concert
  ticket?

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Sunk Cost

• A cost that cannot be avoided

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Sunk Cost

• A cost that cannot be avoided
• or has already been incurred
• Sunk costs should not influence future decisions

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Sunk Cost

• On a long road trip with your family, you stop at
  a roadside stand to buy apples. One hour later,
  while eating the apples, you discover that they
  have gone bad and taste horrible. Your father
  continues to eat the apples claiming that since
  they have been purchased, the apples must be
  eaten.

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Sunk Cost

• Example The ticket already paid for
• Broncos tickets
• Ski passes

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Sunk Cost

• Carly spends thousands of dollars and four years
  earning a degree in accounting. She gets her
  first job and decides she hates accounting. She
  dreams of becoming a computer programmer, but
  claims that she cant because she has already
  spent so much on her accounting degree.

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Sunk Cost

• Example The ticket already paid for
• Marketing angle people are more likely to
  attend an event they have paid for (rather than
  one for which they receive a free ticket)

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Sunk Cost

• Practice!

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Key Learnings

• 7. Costs that cannot be avoided are called
  _______ costs.