Chapter 1: An Economic Way of Thinking
Adam Smith Father of Economics Said competition and a free market is key to a healthy economy Your age group is very powerful! Think about how you influence companies about spending money on manufacturing and advertising.
What is Economics? The study of how people choose to use their limited resources to satisfy their unlimited wants. Economics deals with things of any VALUE, not just monetary value o Everyone has different values & wants What I have. What I WANT.
What is Economics? People make choices. People s choices involve costs. People respond to incentives in predictable ways.
Economics Vocabulary Microeconomics economic decision making of individuals, households, and businesses Macroeconomics the workings of the economy as a whole Positive Economics focuses on facts and cause and effect relationships; how things are Normative Economics uses value judgments and opinions; how things ought to be
Scenarios to Figure Out Which type of economics would be used for each scenario (2 answers for each question) Macro vs. Micro Positive vs. Normative 1. Should you use part of your paycheck to buy a yearbook or pay your cellphone bill? 2. What could Broad Run do to reduce the sports fee required to play sports? 3. What are the costs to build President Trump s wall between Mexico and the U.S.? 4. Should the U.S. change the provision that allows the Senate & Congress to be paid when the federal government shuts down?
#1 Scarcity Forces Tradeoffs Limited resources force people to make choices and face tradeoffs when they choose Scarcity- means in short supply Shortages are temporary (can be made again if the resources are available)
Scarcity Forces Tradeoffs Practice What are the tradeoffs of driving to school vs. taking the bus to school? What are some of the tradeoffs you make when you decide to do sports/clubs? What are the tradeoff to learning a new language beside the one you speak usually?
#2 Costs vs. Benefits Costs what you spend in money, time, effort, or other sacrifices from making a decision Benefits what you gain from something in terms of money, time, experience, or other improvements from making a decision
Costs vs. Benefits Example
#3 Thinking at the Marginwhen we decide to add or subtract a little to or from what we already have Marginal benefit- what is gained by adding one more unit to an activity marginal benefit > marginal cost = do more of it Marginal cost- what is given up by adding one more unit to an activity marginal cost > marginal benefit = do less of it
Thinking at the Margin Practice If I sleep another 30 minutes, what do I give up? Costs Benefits
#4 Incentives Matter Something that motivates a person to do something It can be either positive or negative Cellphone
#5 Trade Makes People Better Off We should focus on what we do well, and then trade with others for the other stuff we need/want
#6 Markets Coordinate Trade Any arrangement that brings buyers and sellers together to do business with each other Free markets are ones in which buyers and sellers trade until both are satisfied Invisible Hand - a term used by Adam Smith to describe his belief that individuals seeking their economic self-interest actually benefit society more than they would if they tried to benefit society directly. What would be an example of the Invisible Hand at work?
#7 Future Consequences Count Decisions made today have consequences not only for today, but also for the future Law of unintended consequences actions of people and governments always have effects that are not expected For example, off the coast of Florida, old tires were used to build reefs to attract fish; unfortunately, over time, the tires began to disintegrate, polluting the water and the tires had to be removed
Future Consequences Count Practice Can you think of an example of Future Consequences Count Principle?
What Tools Do Economists Use? Scientific Method involves posing a question researching the question developing a hypothesis conducting studies and collecting information analyzing the information evaluating the hypothesis Graphs show the relationship between two given sets of data It is a simplification & does not represent all the variables Y X
Economic Models a simplified representation of reality that allows economists to focus on the effects of one change at a time Can take the form of an equations, computer program or diagram Useful for explaining and predicting how the economy works
Works Cited List https://www.pinterest.com/explore/cell-phone-humor/?lp=true https://emojiisland.com/products/angel-halo-iphone-emoji-jpg http://clipart-library.com/images-of-a-person-thinking.html http://www.theupsell.com/tag/future-customer-service/ https://marketbusinessnews.com/financial-glossary/economic-model-definitionmeaning/