Scarcity and choice 1st term 2011

1,095 views
932 views

Published on

Published in: Technology, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,095
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
48
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Scarcity and choice 1st term 2011

  1. 1. THE ECONOMIC PROBLEM AND SOME BASIC CONCEPTS
  2. 2. “ Be anxious for nothing, but in everything by prayer and supplication with thanksgiving, let your request be made known to God; and the peace of God which surpasses understanding will guard your hearts and minds through Christ Jesus …” Phil 4:6-7
  3. 3. OBJECTIVES <ul><li>Review lessons 1 & 2 – www.econ & 3-1 subject (science, social science & arts) </li></ul><ul><li>Discuss your answers to the Question - Why do we have to make a choice? </li></ul><ul><li>Understand and apply basic economic concepts of </li></ul><ul><ul><ul><li>scarcity </li></ul></ul></ul><ul><ul><ul><li>opportunity cost </li></ul></ul></ul><ul><ul><ul><li>marginal costs and benefits </li></ul></ul></ul><ul><ul><ul><li>externalities </li></ul></ul></ul><ul><li>Define economics </li></ul>
  4. 4. 3 BENEFITS OF STUDYING ECONOMICS <ul><li>Learn a new WAY of thinking </li></ul><ul><li>Understand WHAT’S going on </li></ul><ul><li>Understand the WHYs of government policies and actions </li></ul>WWW.econ
  5. 5. MICRO ECONOMICS MACRO ECONOMICS 2 Branches/ Fields 2 Types of Analyses Positive “ What is, was, will be” Normative “ What ought to be?” SCIENCE SOCIAL SCIENCE ART “ Applied Economics” 3-1 Discipline Taxonomy of Economics
  6. 6. WHY DO WE HAVE TO MAKE A
  7. 7. ANG SAGOT SA TANONG… WHY DO WE HAVE TO MAKE A CHOICE? To reach a goal /move forward/ bring change in life / Give us purpose in life/give us a good future and a better life & success Gift of God/ We have the freedom/right to choose/ inevitable/ to make us responsible & independent persons/ choices reflect our values or morals/ you can not have it all/everything To know what is wrong or right and learn from them/live with The consequences of decision/Be on the right track/ path Deep philosophical answers! Let us bring them to the world of economics...
  8. 8. GOAL – Attend classes today You CAN NOT DO ALL These activities At the same time! WHY? Our TIME is LIMITED or SCARCE
  9. 9. ECON_FACT 1 <ul><li>SCARCITY OF RESOURCES FORCES US TO MAKE A CHOICE! </li></ul><ul><li>Scarcity is knowing that life is this __ OR that __ (Yes!) and not this__ AND__ that (X) </li></ul>
  10. 10. ECON_FACT 1 <ul><li>WHY are resources scarce? </li></ul><ul><li>finite resources < infinite human wants </li></ul><ul><li>Limited goods & services < unlimited human wants </li></ul><ul><li>The same resources can not produce equally the same number of different goods at the same time </li></ul>SCARCITY IS THE BASIC ECONOMIC PROBLEM
  11. 11. SPEND MONEY MONEY IS NEVER ENOUGH… ALWAYS SCARCE! SAVE MONEY SCARCITY
  12. 12. Economics is… RESOURCES OPTION 1 OPTION 2 OPTION 3 GOALS SCARCE Science of scarcity Science of efficiency <ul><li>Study of how society manages its scarce resources </li></ul>
  13. 13. ECONOMIC TOOLS IN MAKING CHOICES OPPORTUNITY COST EXTRA BENEFITS VS EXTRA COST OR THINKING AT THE MARGIN THINKING OF THE UNINTENDED CONSEQUENCES INCENTIVES
  14. 14. Because resources are scarce… <ul><li>PEOPLE MUST MAKE A CHOICE </li></ul><ul><li>How people make decisions </li></ul><ul><li>Principle #1 – People face tradeoffs </li></ul><ul><li>Principle #2 – The cost of something is what you give up to get it (OPPORTUNITY COST) </li></ul><ul><li>Principle #3 – Rational people think at the margin (MARGINAL COST vs. MARGINAL BENEFIT) </li></ul><ul><li>Principle #4 – People respond to incentives </li></ul>(Mankiw, 1988)
  15. 15. PEOPLE FACE TRADEOFF <ul><li>The exchange of one thing for another or more or less equal value to effect a compromise </li></ul><ul><li>To get one thing, we usually have to give up another thing </li></ul>Making decisions requires trading off one goal against another
  16. 16. OPPORTUNITY COST <ul><li>The cost of something given up in order to obtain a good </li></ul><ul><li>The next best alternative that is forgone when we make a decision or a choice </li></ul>Cost of the tradeoff is called OPPORTUNITY COST
  17. 21. LOOKING THROUGH THE EYES OF SCARCITY… <ul><li>Choosing one over the other course of action would cost you to give up the next best alternative </li></ul>
  18. 22. LET’S IDENTIFY THE TRADEOFFS & OPPORTUNITY COST OF THE FF. <ul><li>COLLEGE EDUCATION </li></ul><ul><li>EARLY MARRIAGE </li></ul><ul><li>PUTTING UP A BUSINESS </li></ul><ul><li>WORKING OVERSEAS/ABROAD </li></ul>GROUP WORK
  19. 23. FAMOUS COLLEGE DROPOUTS
  20. 24. KOBE and LEBRON gave up college education to earn millions as a basketball player.
  21. 25. Because of high opportunity cost of college education, Britney Spears & Sharon Cuneta gave it up for show business!
  22. 26. ECONOMIC WAY OF THINKING means… Always thinking of the OPPORTUNITY COST OF THE DECISION! What am I giving up for this choice?
  23. 27. MARGIN means EXTRA OR ADDITIONAL THINKING AT THE MARGIN?
  24. 28. COST VS. BENEFITS…PLUS (+) AGAINST MINUS (-) <ul><li>COST AND BENEFITS AND DECISION MADE AT THE MARGIN </li></ul><ul><li>Marginal means additional or extra </li></ul><ul><li>Extra BENEFITS > Extra COSTS </li></ul><ul><li>EXTRA advantages should be MORE THAN the EXTRA disadvantages </li></ul>
  25. 29. STUDENT THINKING OF SHIFTING TO OTHER COURSE EXTRA OR MARGINAL BENEFITS EXTRA OR MARGINAL COSTS EXTRA /MORE INTERESTS IN STUDY EXTRA TIME TO BE IN CSB EXTRA YEARS/ TIME TO FINISH THE NEW COURSE EXTRA MONEY FOR TUITION & BAON DELAY IN WORKING AND EARNING MORE PASSION IN FUTURE WORK OR BUSINESS HENCE MORE FUTURE INCOME I WILL SHIFT IF THE EXPECTED MARGINAL BENEFITS ARE GREATER THAN THE EXPECTED MARGINAL COSTS!
  26. 30. A SECOND GLASS…? YES EXTRA OR MARGINAL BENEFITS Quench my thirst a second time Good for cleansing my body of toxins Replenish lost water in body NO EXTRA OR MARGINAL COSTS Bloat my stomach Make me pee Add weight for a while (E)MB< (E)MC (E)MB > (E)MC
  27. 31. ECONOMIC WAY OF THINKING means… Choosing the action or things that will give more extra or marginal benefits Do I expect to benefit from this choice?
  28. 32. UNINTENDED CONSEQUENCES <ul><li>Thinking in terms of unintended effects… </li></ul><ul><li>EXTERNALITY – the impact of one’s actions on the well-being of other people. </li></ul><ul><li>Impact may be positive or negative </li></ul><ul><li>A cost or a benefit that is not included in the price of a good </li></ul>
  29. 33. Positive and Negative Externalities <ul><li>The effects of a decision by consumers and producers that has an impact on a third party </li></ul><ul><ul><li>Positive Externalities – beneficial effects on third parties </li></ul></ul><ul><ul><li>Negative Externalities – costs incurred by third parties </li></ul></ul>
  30. 34. EXTERNALITIES = Market Failures <ul><li>ALCOHOL MISUSE </li></ul><ul><li>1. Benefits </li></ul><ul><li>Private benefits to the user </li></ul><ul><li>Positive externalities </li></ul><ul><li>2. Costs </li></ul><ul><li>Private costs to the user </li></ul><ul><li>Negative externalities </li></ul>
  31. 35. EXTERNALITIES = Market Failures <ul><li>EDUCATION </li></ul><ul><li>+Positive Externalities </li></ul><ul><li>- Negative Externalities </li></ul>HAVING EDUCATION WILL BRING MORE POSITIVE EXTERNALITIES/EFFECTS!
  32. 36. SCARCITY & + AND - EXTERNALITIES POSITIVE EXTERNALITY NEGATIVE EXTERNALITY ASSIGNMENT SEPT 27 ;1 YELLOW PAD QUIZ 1 <ul><li>DISCUSS THE LINK BETWEEN </li></ul><ul><li>1. SCARCITY AND UNLIMITED WANTS </li></ul><ul><li>2. SCARCITY AND CHOICE </li></ul><ul><li>3. SCARCITY AND COMPETITION </li></ul><ul><li>B. LIST 5 + & - EXTERNALITIES </li></ul><ul><li>SEATBELT LAW </li></ul><ul><li>PROHIBIT THE USE OF PLASTIC BAGS </li></ul><ul><li>SMOKING CIGARETTES </li></ul>

×