Scarcity and choice 1st term 2011Presentation Transcript
THE ECONOMIC PROBLEM AND SOME BASIC CONCEPTS
“ 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
Discuss your answers to the Question - Why do we have to make a choice?
Understand and apply basic economic concepts of
marginal costs and benefits
3 BENEFITS OF STUDYING ECONOMICS
Learn a new WAY of thinking
Understand WHAT’S going on
Understand the WHYs of government policies and actions
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
WHY DO WE HAVE TO MAKE A
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...
GOAL – Attend classes today You CAN NOT DO ALL These activities At the same time! WHY? Our TIME is LIMITED or SCARCE
SCARCITY OF RESOURCES FORCES US TO MAKE A CHOICE!
Scarcity is knowing that life is this __ OR that __ (Yes!) and not this__ AND__ that (X)
WHY are resources scarce?
finite resources < infinite human wants
Limited goods & services < unlimited human wants
The same resources can not produce equally the same number of different goods at the same time
SCARCITY IS THE BASIC ECONOMIC PROBLEM
SPEND MONEY MONEY IS NEVER ENOUGH… ALWAYS SCARCE! SAVE MONEY SCARCITY
Economics is… RESOURCES OPTION 1 OPTION 2 OPTION 3 GOALS SCARCE Science of scarcity Science of efficiency
Study of how society manages its scarce resources
ECONOMIC TOOLS IN MAKING CHOICES OPPORTUNITY COST EXTRA BENEFITS VS EXTRA COST OR THINKING AT THE MARGIN THINKING OF THE UNINTENDED CONSEQUENCES INCENTIVES
Because resources are scarce…
PEOPLE MUST MAKE A CHOICE
How people make decisions
Principle #1 – People face tradeoffs
Principle #2 – The cost of something is what you give up to get it (OPPORTUNITY COST)
Principle #3 – Rational people think at the margin (MARGINAL COST vs. MARGINAL BENEFIT)
Principle #4 – People respond to incentives
PEOPLE FACE TRADEOFF
The exchange of one thing for another or more or less equal value to effect a compromise
To get one thing, we usually have to give up another thing
Making decisions requires trading off one goal against another
The cost of something given up in order to obtain a good
The next best alternative that is forgone when we make a decision or a choice
Cost of the tradeoff is called OPPORTUNITY COST
LOOKING THROUGH THE EYES OF SCARCITY…
Choosing one over the other course of action would cost you to give up the next best alternative
LET’S IDENTIFY THE TRADEOFFS & OPPORTUNITY COST OF THE FF.
PUTTING UP A BUSINESS
FAMOUS COLLEGE DROPOUTS
KOBE and LEBRON gave up college education to earn millions as a basketball player.
Because of high opportunity cost of college education, Britney Spears & Sharon Cuneta gave it up for show business!
ECONOMIC WAY OF THINKING means… Always thinking of the OPPORTUNITY COST OF THE DECISION! What am I giving up for this choice?
MARGIN means EXTRA OR ADDITIONAL THINKING AT THE MARGIN?
COST VS. BENEFITS…PLUS (+) AGAINST MINUS (-)
COST AND BENEFITS AND DECISION MADE AT THE MARGIN
Marginal means additional or extra
Extra BENEFITS > Extra COSTS
EXTRA advantages should be MORE THAN the EXTRA disadvantages
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!
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
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?
Thinking in terms of unintended effects…
EXTERNALITY – the impact of one’s actions on the well-being of other people.
Impact may be positive or negative
A cost or a benefit that is not included in the price of a good
Positive and Negative Externalities
The effects of a decision by consumers and producers that has an impact on a third party
Positive Externalities – beneficial effects on third parties
Negative Externalities – costs incurred by third parties
EXTERNALITIES = Market Failures
Private benefits to the user
Private costs to the user
EXTERNALITIES = Market Failures
- Negative Externalities
HAVING EDUCATION WILL BRING MORE POSITIVE EXTERNALITIES/EFFECTS!
SCARCITY & + AND - EXTERNALITIES POSITIVE EXTERNALITY NEGATIVE EXTERNALITY ASSIGNMENT SEPT 27 ;1 YELLOW PAD QUIZ 1