Scarcity and choice 1st term 2011
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Scarcity and choice 1st term 2011

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Scarcity and choice 1st term 2011 Scarcity and choice 1st term 2011 Presentation 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
  • OBJECTIVES
    • Review lessons 1 & 2 – www.econ & 3-1 subject (science, social science & arts)
    • Discuss your answers to the Question - Why do we have to make a choice?
    • Understand and apply basic economic concepts of
        • scarcity
        • opportunity cost
        • marginal costs and benefits
        • externalities
    • Define economics
  • 3 BENEFITS OF STUDYING ECONOMICS
    • Learn a new WAY of thinking
    • Understand WHAT’S going on
    • Understand the WHYs of government policies and actions
    WWW.econ
  • 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
  • ECON_FACT 1
    • 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)
  • ECON_FACT 1
    • 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
    (Mankiw, 1988)
  • 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
  • OPPORTUNITY COST
    • 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
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  • 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.
    • COLLEGE EDUCATION
    • EARLY MARRIAGE
    • PUTTING UP A BUSINESS
    • WORKING OVERSEAS/ABROAD
    GROUP WORK
  • 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?
  • UNINTENDED CONSEQUENCES
    • 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
    • ALCOHOL MISUSE
    • 1. Benefits
    • Private benefits to the user
    • Positive externalities
    • 2. Costs
    • Private costs to the user
    • Negative externalities
  • EXTERNALITIES = Market Failures
    • EDUCATION
    • +Positive Externalities
    • - 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
    • DISCUSS THE LINK BETWEEN
    • 1. SCARCITY AND UNLIMITED WANTS
    • 2. SCARCITY AND CHOICE
    • 3. SCARCITY AND COMPETITION
    • B. LIST 5 + & - EXTERNALITIES
    • SEATBELT LAW
    • PROHIBIT THE USE OF PLASTIC BAGS
    • SMOKING CIGARETTES