In fact, you might say that it isn t economics if it isn t about choice. This leads to the fact that we are all self interested.

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4 In fact, you might say that it isn t economics if it isn t about choice. This leads to the fact that we are all self interested. 4

5 Ask students to list all economic choices they had to make that week Students can analyze 1 2 of these choices in terms of the alternatives they gave up; what choices did they have? What criteria were used to judge the alternatives? Discuss how rational our decisions are. 5

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7 The hourly wage represents what I earn for working an extra hour it is the marginal gain or the marginal benefit. The value of time is essentially an opportunity cost it is how much I value having that hour off. In this example it represents amarginal cost what it costs me by working an additional hour. The increase marginal cost is a common phenomenon; I do not mind working a few hours since there are 24 hours in a day. I still have plenty of time to do other things. However, as I start to work more hours it reduces the number of hours I have for other activities. I have to start giving up more and more valuable opportunities to work those extra hours. It is clear that I should work the first hour, as I gain $10 in marginal benefits and lose only $2 in marginal cost, for a net gain of $8. By the same logic I should work the second and third hours as well. I will want to work until which time the marginal cost exceeds the marginal benefit. I will want to work the 10th hour as I receive a net benefit of $3 (marginal benefit of $15, marginal cost of $12). However, I will not want to work the 11th hour, as the marginal cost ($18) exceeds the marginal benefit ($15) by three dollars. Thus marginal analysis suggests that rational maximizing behavior is to work for 10 hours. 7

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9 Does it matter what kind of people you hire? Is someone with a biology degree a good construction worker? Vice versa? Does it matter if you have hard workers or lazy workers? 9

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14 Ex. School Parking Lot: The size of the school is limited, which means only a certain number of cars can be parked there. If the parking lot were expanded, without purchasing more land, what would be sacrificed? Ex. Hydroelectric Dam: A hydroelectric dam is being planned for a river. Many costly resources will be required to build this dam. Those resources could have been used in other projects. So a bridge over a scenic wild river, or a new highway was sacrificed. By damming the river, we also give up goods and services that could have been generated by the undammed river. Maybe guided whitewater rafting was sacrificed. 14

15 To get more of one thing, you forgo the opportunity of getting something else. So the cost of the dam is the value of all that which is sacrificed to obtain it. 15

16 Ex: Ask student for an example of an after school activity they night choose (a sport, club, theater, etc.) By choosing to play, say tennis, what was the next best activity given up? Suppose it was a spot on band. The student is giving up the spot in the band, an activity that would have given the student a lot of enjoyment. How could we place a value on this forgone fun? What is the cost? The amount of fun the student would have had in the other activity (band). If you had to pay a fee for the spot in the band, how much would you pay? Start at $5. If you would pay $5 to join the band and have that fun, would you pay $10, $20, $50? Once student reaches the max dollar amount they would pay to join the band, you have placed a value on the opportunity cost of playing tennis. 16

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21 1) Resources are anything that can be used to produce something else 2) The four categories of the economy s resources are land, labor, capital and entrepreneurship 3) The characteristic that results in the need to make choices is scarcity 4) The real cost of something you must give up to get something you want 21