Activator Chapter 1. List the problem that each of the following faced:

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1 Activator Chapter 1 During the holiday season of 1996, a children's toy appeared on Good Morning America. The toy, produced by Mattel, had sat on the shelves with very little sales until it appeared on the show. After the toys appearance, its popularity improved and it became the most sought after product of the holiday season. Unfortunately, Mattel did not anticipate the doll s popularity, only producing 400,000 units, and were not able provide the product in a timely manner at the store level (over 1,000,000 were in demand). List the problem that each of the following faced: 1. The Consumers You and I 2. The Producer Mattel 3. The Stores Babies, Toys R Us, Walmart, etc.

Unit 1: Basic Economic Concepts CHAPTER 1

satisfy those wants Society cannot produce

Scarcity applies to everyone; no one can

2 Unit 1: Basic Economic Concepts CHAPTER 1 The Ten Principles of Economics Scarcity - fundamental problem facing all people; unlimited wants and limited resources to satisfy those wants Society cannot produce all the goods and services people want Scarcity applies to everyone; no one can have an endless supply of everything e.g. - money, time, rest, etc.

3 Application Question List three things that you feel are scarce in your life, what has caused them to become scarce?

4 What is Economics? Economics the study of choices; how society manages its resources Oikonomos (Greek) One who manages a household What do economists study? Individual Decisions how much they work, save, and invest, what they buy, how they interact etc. Social decisions allocation of resources, decisions of governmental agencies, etc. Forces and trends growth in income, unemployment, inflation, etc.

The Ten Principles of Economics Principle 1 People face tradeoffs Principle 2 The cost of something is what you give up to get it Principle 3 Rational people think at the margin Principle 4 People

5 The Ten Principles of Economics Principle 1 People face tradeoffs Principle 2 The cost of something is what you give up to get it Principle 3 Rational people think at the margin Principle 4 People respond to incentives Principle 5 Trade can make everyone better off Principle 6 Markets are usually a good way to organize economic activity Principle 7 Governments can sometimes improve market outcomes Principle 8 A country s standard of living depends on its ability to produce goods and services Principle 9 Prices rise when the government prints too much money Principle 10 Society faces a short-run tradeoff between inflation and unemployment

How People Make Decisions Principle 1: People face trade-offs Trade-off a sacrifice that

up something to get something else There is no such thing as a free lunch.

Equality Tradeoff (social) Efficiency society is getting the maximum benefits from its

6 How People Make Decisions Principle 1: People face trade-offs Trade-off a sacrifice that must be made to obtain a certain choice, rather than the alternative choice We always give up something to get something else There is no such thing as a free lunch. Individuals, households and society all face tradeoffs Efficiency vs. Equality Tradeoff (social) Efficiency society is getting the maximum benefits from its scarce resources Equality society distributes benefits uniformly among its members Welfare system, unemployment insurance, food stamps, etc.

to come to school. In the third column, list the alternative that you would have desired the most.

7 Application Question Directions: Create a 3 column chart, label it as shown below. In the second column, list 3 possible alternatives that you could have made other than your choice to come to school. In the third column, list the alternative that you would have desired the most. Choice 1. Coming to Economics Class Alternatives Choices What you would have done if you didn t come to class 1. 3.

How People Make Decisions Principle 2: The cost of

used by economists to measure the cost of decision-making;

alternative use of money, time, or resources (Highestvalued

8 How People Make Decisions Principle 2: The cost of something is what you give up to get it Opportunity Cost used by economists to measure the cost of decision-making; value of the most desirable alternative given up Next best alternative use of money, time, or resources (Highestvalued alternative forgone) 8 Coming to Economics Sleeping (Opportunity Cost)

9 Trade-Offs Turn to page 4 in your book. Write a summary and example(s) of each of the following listed below. Individuals and Trade-Offs Parents and Trade-Offs Society and Trade-Offs

purposefully do the best they can to achieve their objectives Marginal change - small

10 How People Make Decisions Principle 3: Rational people think at the margin Margin - an edge and the area immediately adjacent to it; a border Rational people - systematically an purposefully do the best they can to achieve their objectives Marginal change - small incremental adjustments to a plan of action Rational decision maker Marginal benefits > Marginal costs 10

11 Thinking at the Margin or Criteria Alternatives Immediate Satisfaction Long Term Benefits Entertaining Immediate Financial Benefits Necessary for Long-term success Sleep Economics

12 Thinking at the Margin or Criteria Alternatives Immediate Satisfaction Long Term Benefits Entertaining Immediate Financial Benefits Necessary for Long-term success Sleep Yes Economics Yes

13 Thinking at the Margin or Criteria Alternatives Immediate Satisfaction Long Term Benefits Entertaining Immediate Financial Benefits Necessary for Long-term success Sleep Yes No Economics Yes Yes

14 Thinking at the Margin or Alternatives Immediate Satisfaction Long Term Benefits Sleep Yes No Yes Economics Yes Yes Yes Criteria Entertaining Immediate Financial Benefits Necessary for Long-term success

15 Thinking at the Margin or Alternatives Immediate Satisfaction Long Term Benefits Criteria Entertaining Sleep Yes No Yes No Economics Yes Yes Yes No Immediate Financial Benefits Necessary for Long-term success

16 Thinking at the Margin or Alternatives Immediate Satisfaction Long Term Benefits Criteria Entertaining Immediate Financial Benefits Sleep Yes No Yes No No Economics Yes Yes Yes No Yes Necessary for Long-term success

17 Thinking at the Margin or Alternatives Immediate Satisfaction Long Term Benefits Criteria Entertaining Immediate Financial Benefits Sleep Yes No Yes No No Economics Yes Yes Yes No Yes Necessary for Long-term success

18 Thinking at the Margin Options Benefit Opportunity Cost

19 Thinking at the Margin Options Benefit Opportunity Cost 1 st hour of extra study time Grade of C on test One hour of sleep

20 Thinking at the Margin Options Benefit Opportunity Cost 1 st hour of extra study time Grade of C on test One hour of sleep 2 nd hour of extra study time Grade of B on test 2 hours of sleep

21 Thinking at the Margin Options Benefit Opportunity Cost 1 st hour of extra study time Grade of C on test One hour of sleep 2 nd hour of extra study time 3 rd hour of extra study time Grade of B on test Grade of B+ on test 2 hours of sleep 3 hours of sleep

How People Make Decisions Principle 4: People

that influences a person to act; positive

unintended consequences - outcomes that are

22 How People Make Decisions Principle 4: People respond to incentives Incentive - something that influences a person to act; positive (reward) or negative (punishment) Law of unintended consequences - outcomes that are not the outcomes intended by a particular action Gasoline tax consumer purchases smaller more fuel efficient cars; carpool; public transportation

23 Stossel Video m#p/u/29/iuzoaiga_9a Unintended Consequences

24 How People Interact Principle 5: Trade can make everyone better off Specialization allows each country to focus on the activities that cost them the least People/countries can buy a greater variety of goods and services at lower cost

How People Interact Principle 6: Markets are usually a good way to organize economic activity Market buyers and sellers meet to exchange goods and

individuals based on exchange of goods and services Adam Smith s Invisible Hand natural flow of the economy based on the consumer and producer

25 How People Interact Principle 6: Markets are usually a good way to organize economic activity Market buyers and sellers meet to exchange goods and services Market Economy (capitalism/free enterprise) economic decisions, what to produce, how to produce it, who to produce it for, are made through by individuals based on exchange of goods and services Adam Smith s Invisible Hand natural flow of the economy based on the consumer and producer relationship (supply and demand) Command Economy (communism) contrast of market economies; government officials (central planners) allocate economy s scarce resources

How People Interact Principle 7: Governments can sometimes improve market outcomes Role of Government Enforce the rules business ethics, maintain fair trade, produce

Market failure - situation in which the market on its own fails to produce an efficient allocation of resources Environmental Protection/pollution, public goods to

26 How People Interact Principle 7: Governments can sometimes improve market outcomes Role of Government Enforce the rules business ethics, maintain fair trade, produce public goods, fair employment, etc. Market failure - situation in which the market on its own fails to produce an efficient allocation of resources Environmental Protection/pollution, public goods to free-riders, monopolies, etc. Externality - impact of one person s actions on the well-being of a bystander Market power (monopoly) - ability of a single person (or small group) to unduly influence market prices Property rights ability of an individual to own and exercise control over scarce resources Junk!!!

27 Stossel Video v3hi

Quantity of goods & services produced from each unit of labor input 2009 -

28 How the Economy as a Whole Works Principle 8: A country s standard of living depends on its ability to produce goods and services Productivity Quantity of goods & services produced from each unit of labor input US worker avg. 46,436 India was $1030 Higher productivity Higher standard of living

level of prices in the economy Growth in quantity of money reduces the

29 How the Economy as a Whole Works Principle 9: Prices rise when the government prints too much money Inflation - An increase in the overall level of prices in the economy Growth in quantity of money reduces the value of money Hyperinflation in Germany after WWI, Zimbabwe dead currency in 2009

How the Economy as a Whole Works Principle 10:

and unemployment Long-run effect of monetary

injections: Business cycle fluctuations in economic

Higher demand for goods and services Firms raise

30 How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off between inflation and unemployment Long-run effect of monetary injection is inflation Short-run effects of monetary injections: Business cycle fluctuations in economic activity Stimulates - overall level of spending Higher demand for goods and services Firms raise prices, hire more workers, produce more goods and services Lower unemployment

The Ten Principles of Economics Poster Project Principle 1 People face tradeoffs Principle 2 The cost of something is what you give up to get it Principle 3 Rational people think at the margin

31 The Ten Principles of Economics Poster Project Principle 1 People face tradeoffs Principle 2 The cost of something is what you give up to get it Principle 3 Rational people think at the margin Principle 4 People respond to incentives Principle 5 Trade can make everyone better off Principle 6 Markets are usually a good way to organize economic activity Principle 7 Governments can sometimes improve market outcomes Principle 8 A country s standard of living depends on its ability to produce goods and services Principle 9 Prices rise when the government prints too much money Principle 10 Society faces a short-run trade-off between inflation and unemployment People Face Tradeoffs Description: individuals, businesses and households face alternative decisions that could be made, but must always give up something in order to obtain something else in light of scarce resources. Picture: this picture represents an individual deciding between various alternatives and facing the tradeoff dilemma. Poster Requirements: 1. Title - The Ten Principles of Economics. 2. Summary Statement The Ten Principles of Economics provide a general guide and outline to the important concepts found in economics. 3. At least 10 pictures to represent each of the principles. 4. Label, describe and summarize picture for each of the 10 principles

32 Group 1 The Ten Principles of Economics Principle 1 People face tradeoffs Principle 2 The cost of something is what you give up to get it Group 2 Principle 3 Rational people think at the margin Principle 4 People respond to incentives Group 3 Principle 5 Trade can make everyone better off Principle 6 Markets are usually a good way to organize economic activity Group 4 Principle 7 Governments can sometimes improve market outcomes Principle 8 A country s standard of living depends on its ability to produce goods and services Group 5 Principle 9 Prices rise when the government prints too much money Principle 10 Society faces a short-run trade-off between inflation and unemployment

33 Due Monday Chapter 1 Notes 2. Homework Incentive Pay 3. Homework Adam Smith and the Invisible Hand 4. Homework Why You Should Study Economics 5. Youtube Video Scarcity and Choice 6. Youtube Video Micro vs. Macro 7. Daily Tens 8. Chapter 1 Practice Review *Reminders Ch. 1 Self-Test Online, print Ch. 2 Notes, take Ch. 2 Pre-quiz by tuesday

PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Ten Principles of Economics PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 2 Ten Principles