Article Report Worksheet For Unit One, we will be re.docx

Article Report Worksheet
For Unit One, we will be reflecting upon the connections
between humans and the environment. This
worksheet will help you prepare for class discussion.
Go to one or more of the following websites:
BBC world news: http://www.bbc.com/news
New York Times world news:
https://www.nytimes.com/section/world?mcubz=1
NPR world news: http://www.npr.org/sections/news/
Smithsonian Magazine:
Spend 30 minutes looking for articles that you think help to
answer this question:
"What is the role of human technological change in shaping the
environment?"
Pick at least two articles that you think best answer this
question. One article should be about America,
and one article should be about another part of the world.
Then open a new word doc, put your name and section time on
the top. Please provide the following
information for each article:

1. Technology and the Environment in America
-Title and author of article
-Journal title
-Three sentence summary of article
-One new question that comes to your mind after reading this
article
2. Technology and the Environment in the World
-Title and author of article
-Journal title
-Three sentence summary of article
-One new question that comes to your mind after reading this
article
3. Reflections
In 2 paragraphs: What do you think these articles tell us about
the connection between technology and
the environment?
http://www.bbc.com/news
http://www.npr.org/sections/news/
Supply and Demand
1/17/19 –

1/22/19
Preclass Music: eBay by Weird Al Yankovic
https://www.youtube.com/watch?v=YKtlK7sn0JQ
Previously
• “Scarcity” refers to the limited nature of
society's resources.
• The production possibilities frontier (PPF)
is an illustration of the goods and services
an economy is capable of producing.
• Trade is generally mutually beneficial for
both parties involved.
Big Questions
1. What are the fundamentals of markets?
2. What determines demand?
3. What determines supply?
4. How can we model shifts in markets using the
supply-demand model?

• What factors
affect the price of
gasoline?
Here’s a question for you…
Fundamentals of Markets—1
• Firms
– Supply goods (or services)
• Consumers
– Purchase goods supplied by firms
• Exchange happens
– Through prices established in markets
– Supply or demand factors can change the
market price
• Market
– Place where buyers and sellers meet

• Doesn’t have to be a physical place
• Market economy
– Resources are allocated
among households and
firms with little or no
government
interference.
– Producers and
consumers are
motivated by self-
interest.
• Characteristics of a competitive market:
– Many buyers and sellers
– The goods sold by each vendor are similar

– Bottom Line: No one individual has any
influence over the price
Competitive Markets
• Imperfect market
– Buyer or seller has an influence on the price
• Market power
– The firm’s ability to influence price
• Monopoly
– A single company that supplies the entire market
for a good or service
Imperfect Markets
Method for learning the
supply-demand model
• Start with demand
• Move on to supply
• Bring supply and demand together in

one model
• Analyze the equilibrium of the model
• Look at effects of external changes
on the equilibrium
Demand—1
• Quantity demanded
– The amount of a good buyers are willing and
able to produce at the current price
• Law of demand
– All else equal, there is an inverse relationship
between price and quantity demanded
“Law” of demand – why?
• Who likes pizza?
• What if you ate a piece of

pizza today? How good
would it taste?
• What if you ate a piece
every hour for the next 12
hours?
• The law of demand is really
the law of diminishing value
Demand—2
• Demand schedule
– Table showing the relationship between price
and quantity demanded
• Demand curve
– Graph of the relationship between price and
quantity demanded
Demand Schedule
Ryan’s Demand Schedule

for Salmon
Price of
Salmon
(per pound)
Pounds of
Salmon
Demanded
$20.00 0
$17.50 1
$15.00 2
$12.50 3
$10.00 4
$ 7.50 5
$ 5.00 6
$ 2.50 7
$ 0.00 8
Higher price Lower quantity
demanded

Lower price
Higher quantity
demanded
Demand Curve
Market Demand—1
• Market demand
– Horizontal sum of all individual quantities
demanded by each buyer in the market at
each price
Market Demand—2
Price of
Salmon
Ryan’s Demand
Melissa’s
Demand
Market Demand
$20.00 0 0 0

$17.50 1 0 1
$15.00 2 1 3
$12.50 3 1 4
$10.00 4 2 6
$ 7.50 5 2 7
$ 5.00 6 3 9
$ 2.50 7 3 10
$ 0.00 8 4 12
+ =
Changes in Quantity Demanded
versus Changes in Demand
• Change in quantity demanded
– Movement along a demand curve
– Caused by a change in the price of the good
• Change in demand
– Shift of the demand curve
• Entire demand curve will shift to the left or right

– Caused by changes in nonprice factors
What happens if…..?
P
Q (Oreos)
D
Event:
The price of
Oreos falls to
$2.00 per
pack?
$3
$2
4 5
A
B
What happens if…?

P
Q (movie tickets)
D
Event:
The price of
movie tickets
increases to
$20?
$20
$15
2 3
B
A
Changes in Demand
Factors that Shift Demand—1
1. Changes in income

• Normal good
– Good we buy more of when we get more
income
• Inferior good
– Good we buy less of when we get more
income
2. Price of related goods
• Complements
– Two goods used together
• Substitutes
– Goods that can be used in place of each other
Prices of Related Goods
• Event: Price of peanut butter increases
P
Peanut butter:

Movement along
the demand curve
$4
$3
2 4
A
B
D
Q
P
Jelly:
A shift in demand
Q
D1D2
3. Changes in Tastes and Preferences
• A good may become more fashionable or may go

out of style
• A good may come into or go out of season
4. Price expectations
– Our consumption today may depend on what
we think the price may be tomorrow
5. Number of buyers
– More individual buyers means more market
demand
6. Taxes
– Excise taxes raise the cost to consumers
7.New information about quality
– E.g. dangers, health, breakage
What happens if…?
P
Q (Big Macs)

D1D2
Event:
The price of a
Burger King
Whopper falls
What happens if…?
P
Q (fancy dinners)
D1 D2
Event:
Your financial
aid is increased
What happens if…?
P
Q (ramen noodles)
D1D2

Event:
Your financial
aid is
increased
What happens if…?
P
Q (pizza)
D1 D2
Event:
The price of
Coke falls
What happens if…?
P
Q (oranges)
D1 D2
Event:

Doctors discover
that oranges
reduce gray hair
Assume Pepsi operates in a
reasonably competitive market
(could be questioned).
• The following three questions
are considering the market for
the same good:
PEPSI
• We are considering:
– Change in quantity demanded
(movement)
– Change in demand (shift)
Assume you like Pepsi and
your income increases.

A. The demand for Pepsi decreases.
B. The quantity demanded of Pepsi increases.
C. The demand for Pepsi increases.
D. The quantity demanded of Pepsi decreases.
Assume the price of Pepsi
decreases
.
A. The demand for Pepsi increases.
B. The demand for Pepsi decreases.
C. The quantity demanded of Pepsi decreases.
D. The quantity demanded of Pepsi increases
Assume the price of Coke
decreases.
A. The demand for Pepsi increases.
B. The demand for Pepsi decreases.
C. The quantity demanded of Pepsi increases.

D. The quantity demanded of Pepsi decreases.
What would you answer?
• Suppose the price of good X increases.
In terms of demand, what is the result?
A. The demand for X increases.
B. The demand for X decreases.
C. The quantity demanded of X increases.
D. The quantity demanded of X decreases.
What would you answer?
• Suppose goods X and Y are substitutes
for each other. If the price of good Y
increases, what is the result in the
market for good X?
A. The demand for X increases.
B. The demand for X decreases.
C. The quantity demanded of X increases.

D. The quantity demanded of X decreases.
Economics in The Hudsucker
Proxy
• The Hudsucker Proxy (1994)
– Watch for changes in price. Which price
changes are an illustration of a movement
along a demand curve, and which are the result
of demand increase?
http://www.criticalcommons.org/Members/fsustavros/clips/cse-
a-hudsucker-proxy-shift-in-demand
Supply—1
• Quantity supplied
– The amount of the good or service that
producers are willing and able to sell at the
current price
• Supply in a competitive market
– All else equal, there is a direct relationship

between price and quantity supplied
Supply—2
• Supply schedule
– Table showing the relationship between price
and quantity supplied
• Supply curve
– Graph of the relationship between price and
quantity supplied
Supply—3
Pure Food Fish’s Supply Schedule
Price of Salmon
(per pound)
Pounds of
Salmon Supplied

$20.00 800
$17.50 700
$15.00 600
$12.50 500
$10.00 400
$ 7.50 300
$ 5.00 200
$ 2.50 100
$ 0.00 0
Higher price Higher quantity
supplied
Lower price
Lower quantity
supplied
Small group discussion: What
determines supply?
• Remember that “supply” is only for

competitive markets (many sellers of
a relatively homogeneous product)
Market Supply—1
• Market supply
– Horizontal sum of all individual quantities
supplied by each seller in the market at each
price
Market Supply—2
Price of
Salmon
Pure Food Fish’s
Supply
City Fish’s
Supply
Market
Supply

$20.00 800 200 1000
$17.50 700 175 875
$15.00 600 150 750
$12.50 500 125 625
$10.00 400 100 500
$ 7.50 300 75 375
$ 5.00 200 50 250
$ 2.50 100 25 125
$ 0.00 0 0 0
+ =
Changes in Quantity Supplied
versus Changes in Supply
• Change in quantity supplied
– Movement along a supply curve
– Caused by a change in the price of the good
• Change in supply
– Shift in the supply curve
• Entire supply curve will shift to the left or right

– Caused by a change in nonprice factors
First Starbucks opened in Seattle’s
Pike Place Market in 1971
Changes in Supply
Factors that Shift Supply—1
1. The cost of inputs
• Inputs
– Resources used in the production
process
2. Changes in technology
• Technology
– Knowledge that producers have about
how to produce a product

3. Taxes and subsidies
• Tax
– ed cost of production
• Subsidy
– “Opposite” of a tax; government pays sellers to
produce goods
• Reduces the cost of production
4. Number of sellers
– More individual sellers means more market
supply
5. Price expectations
– Higher price expected tomorrow? If so, delay
sales until future if possible
What do you think?
• Assume the price of cheese decreases. What

will happen to supply of pizza?
A. The supply of pizza increases.
B. The supply of pizza decreases.
C. The quantity supplied of pizza increases.
D. The quantity supplied of pizza decreases.
What do you think?
• Which of the following will
cause the supply curve for
oranges to shift to the left?
A. The government begins subsidizing orange
growers.
B. A study is released showing oranges improve
eyesight.
C. An ice storm strikes Florida.
D. A new orange juice commercial airs on TV.
Bringing Supply and Demand

Together
• How is the price of a good
determined?
– By supply and demand colliding in
markets
• Nature of a competitive equilibrium
(1)
– The market price of any good will adjust
to bring the quantity supplied and quantity
demanded into balance
Supply and Demand—1
• Equilibrium price
– The price at which quantity supplied is equal to
quantity demanded
– The price that “clears the market”
• Equilibrium quantity
– The quantity at which quantity demanded is equal to

quantity supplied
Shortages and Surpluses—1
• Shortage
– Occurs when QD > QS
– Occurs at any price below equilibrium
• Price will rise over time toward equilibrium unless
there are some barriers
• Why does price rise over time with a
shortage?
– Consumers will “outbid” other consumers
with low valuations of the product
Shortages and Surpluses—2
• Surplus
– Occurs when QS > QD
– Occurs at any price above equilibrium
• Price will fall over time toward equilibrium (this is
where many sellers becomes especially important)

• Why does price fall over time with a
surplus?
– Firms will lower prices to get rid of mounting
inventories
Supply and Demand—2
In terms of supply and
demand schedules
Another possibility
Principles of Economics, Second Edition
Copyright © 2018 W. W. Norton & Company
Price (per seat) Quantity demanded in
year 1
Quantity demanded In
year 2

Quantity supplied
$25 75,000 60,000 45,000
$30 60,000 55,000 45,000
$35 45,000 50,000 45,000
$40 30,000 45,000 45,000
$45 15,000 40,000 45,000
Economics in Pawn Stars
• Pawn Stars (History Channel)
– Bartering is a great way to see the
forces of supply and demand at work.
http://www.criticalcommons.org/Members/fsustavros/clips/cse-
1-5-history-channel-pawn-shop-bartering-1
Steps in analyzing effect of
shifts on equilibrium P and Q
1. Decide which curve is shifting?
2. Is the curve shifting up (more at all
prices/right) or down (less at all

prices/left)?
3. Add shift onto the supply/demand
schedule or graph
4. Analyze the resulting equilibrium
REMEMBER: The S-D model’s purpose
is to analyze equilibria. Don’t presume!
What do you think?
• Suppose there is a shortage in the market for
avocados. Assuming a competitive and
unrestrained market, what happens over time?
A. The price of avocados will fall, and the shortage
will worsen.
B. The price of avocados will rise, and the market
will eventually reach equilibrium.
C. The price of avocados will rise, and a large
surplus will be created.
D. Producers will stop growing avocados.

Graphs of Shifts—1
Change Illustration
Impact on Equilibrium
Price and Quantity
Demand increases
Due to increased
income, changes in
tastes, lower price of
complements, etc.
The demand curve shifts
to the right. As a result,
the equilibrium price and
equilibrium quantity
increase.
Supply increases
Due to technological
improvements, lower

costs, lower taxes, etc.
The supply curve shifts
to the right. As a result,
the equilibrium price
declines and the
increases.
Graphs of Shifts—2
Change Illustration
Impact on Price and
Quantity
Demand decreases
Due to decreased
income, changes in
tastes, higher price of
complements, etc.
The demand curve shifts
to the left. As a result,

the equilibrium price and
decrease.
Supply decreases
Due to increased
costs, increased taxes,
etc.
The supply curve shifts
to the left. As a result,
the equilibrium price
increases and the
decreases.
Just remember…….

• Supply and demand is only for
roughly competitive markets.
• If there is just one or two
buyers, what does the
demand curve look like?
• If there is only one seller, what
does supply look like?
Just remember…….
• Supply and demand is only for
roughly competitive markets.
• If there is just one or two
buyers, what does the
demand curve look like?
• If there is only one seller, what
does supply look like?
Answer
Whatever they want the quantity demand
and quantity supplied to look like.
Demand and supply are just one point if
markets are truly uncompetitive
Conclusions

• If you take away just one thing from this course,
it will probably be supply and demand
– Powerful tool for explaining market changes
• In competitive markets, supply and demand
allow prices to adjust toward equilibrium
– The model predicts no surpluses or shortages
• Shift in supply and demand due to exogenous
changes change equilibrium price and quantity
– Trick is figuring out which curve is shifting in which
direction!
Economic Models,
Tradeoffs and
Trade
1/10/19
1/15/19
Pre-Class Music In the End by Linkin Park

https://www.youtube.com/watch?v=eVTXPUF4Oz4
Agenda
• Key observations on economic issues in
Spain
• Key methodological issues in economics
• Production basics
• Tradeoffs in context of the production
possibilities frontier
• Comparative advantage and gains from
trade
Previously
• Economics is the study of how people
allocate their scarcity resources.
• “Scarcity” refers to the limited nature of
society’s resources.
• Incentives are factors that motivate a
person to act or exert effort.

• Trade and markets can help in allocation
as can governments
Methods
The Scientific Method in Economics
• Best practice is to use the scientific
method to explain economic phenomena:
– Observe a phenomena
– Develop a hypothesis
– Construct a model to test the theory
– Design an experiment to test how well the
model works and collect data
– Revise or refute the theory based on evidence
Scientific Method in Action - 1

OBSERVE AND
DEVELOP HYPOTHESES
Positive and Normative Analysis
• Positive statement
– Can be tested and validated
– Describes “what is”
• Normative statement
– Describes “what ought to be,” hopefully
based on criteria
– May be difficult test if an outcome is “best”
• Economists are concerned with both
positive and normative analysis.
What do you think?

• Is the statement positive or normative:
1. Rich people should be taxed more.
2. More taxes on the rich will increase tax
revenues.
3. Everyone should donate to charity.
4. Government intervention in markets is bad.
5. Economics majors earn more on average than
some other majors do.
Economic Models—1
• We use models to understand the complex
real-world economy.
• Models (sometimes called analytical
frameworks)
– In world of “theory” and “stories”
– Simplified versions of reality that capture the
essence
– Built with some assumptions

– Are considered good if they accurately predict
human behavior
Economic Models—2
• Ceteris paribus
– Latin: Means “other things being equal”
– Often used to build economic models
– Allows us to examine a change in one
variable while holding everything else
constant
Economic Analysis
• Endogenous factors
– Variables that are part of a model
• Exogenous factors
– Variables that cannot be accounted for in a
model

Models and Ceteris Paribus—1
• Who gets paid more…
– Educated or uneducated individuals?
– Skilled or unskilled labor?
– Worker right out of college or older worker?
– New employee or veteran employee?
– Safe or dangerous job?
– Particular ethnic groups?
– People in the country or city?
Models and Ceteris Paribus—1
• Who gets paid more…
– Educated or uneducated individuals?
– Skilled or unskilled labor?
– Worker right out of college or older worker?
– New employee or veteran employee?
– Safe or dangerous job?
– Particular ethnic groups?

– People in the country or city?
HOW CAN YOU
KNOW FOR SURE?
PROVE IT
Models and Ceteris Paribus –
Small Group discussion
• Suppose you want to analyze wages and
are particularly interested in racism and
discrimination. How would you model
such a situation?
• What are the potential factors that might
confound you identifying the effect of
racism on wages?
• Does confounding mean we cannot
analyze the problem?
Graphs – 1 Plotting points

Graphs – 2 Slopes
Graphs 3 – Changing positive
slope
Graphs 4 – changing negative
slope
See K & W appendix to ch. 2
for much more practice with
graphs
Production
Human welfare can come from…
• Marketed material things (e.g. iPhones)
• Marketed services (e.g. a massage)
• Things not sold (e.g. clean air, hikes,

good social interactions
• The market economy (with other
institutions) facilitates production of some
of these goods and services, but not all
• All need to be produced by someone
What is needed for a restaurant
to produce a famous Spanish
food like gazpacho?
What is needed for a restaurant
to produce a famous Spanish
food like gazpacho?
You need factors of
production
A key reason scarcity exists is the
factors of production are scarce

• Labor - skilled, unskilled and
entrepreneurial
• Land - all natural resources (owned
and not-owned)
• Capital - the "tools" of production -
machines, vehicles, buildings,
inventory, human capital
Human capital is especially
important for economic progress
What is the capital of the
following businesses?
•Machine shop
•Trucking firm
•Hotel
•Liquor store
•Accounting firm

How do the different factors
get paid?
• Labor - wages/salaries
• Capital - profits (businesses) or
higher wages (skills)
• Land – rents (always generated, but
not always owned by humans)
Tradeoffs
Production Possibilities Frontier— a
two-dimensional model of n-dimensional
economies
• Production possibilities frontier
– Illustrates the combinations of outputs that a
society can produce if all of its resources are
being used efficiently
• Assumptions (ceteris paribus):

– Technology fixed
– Quantity of resources fixed
– Society produces only two goods (for
simplicity):
• Pizza and wings
Production Possibilities Frontier—2
• With regard to the PPF, an efficient
point is a point that is
A. impossible to reach.
B. inside the PPF.
C. outside the PPF.
D. on the PPF.
What do you think?
PPF and Opportunity Cost—1
• Why is the PPF downward-sloping?

– Must give up one good to increase production
of another
• Recall opportunity cost
– Highest-valued alternative given up to pursue
an action
• If we move down and to the right along
a PPF, the opportunity cost of this
movement can be measured in terms of
A. how much of the x-axis good we gain.
B. how much of the y-axis good we gain.
C. how much of the x-axis good we give up.
D. how much of the y-axis good we give up.
What do you think?
• BUT all resources are typically not perfectly
suited for producing both goods
• If true, the PPF will not have a constant

slope.
• AND the opportunity cost of producing a
good will rise as we produce more of it.
– i.e. the slope will get steeper as we move
from left to right.
Small group discussions – Portland-
Area production tradeoffs – 5 minutes
• Willamette Valley is great at producing
wine and urban tourism. Name 8
resources that are critical to producing
each one?
• Can you tell stories where all of them
are used for only one good/service?
• “Law” of increasing opportunity cost
– The opportunity cost of producing a good

rises as society produces more of it.
– The PPF will not have a constant slope.
• The slope will rise (in absolute value) as we move
from left to right.
The PPF and Economic
Growth—1
• Economic growth
– The process that enables a society to produce
more output in the future
– Can be shown by a shift outward of the PPF
• Some previously unattainable good combinations
would now be possible to produce
The PPF and Economic

Growth—2
• The PPF could shift out because of
– New technology
– New (or better) resources available
• These changes in technology or resources
could affect the production of
– Only one good
– Both goods
Pizza-favoring Economic Growth—4
Shift in the PPF that increases
potential of both goods - 5
False.
It represents how
many cars and
bicycles are

produced, not
sold.
Bicycles
Cars
A
(True/False) Point A represents the amounts of
cars and bicycles that will be sold.
What do you think?
True.Bicycles
Cars
A
C
(True/False) Movement along the curve from point
A to point C shows us the opportunity cost of
producing more bicycles.
What do you think?

False.Bicycles
Cars
?
(True/False) If we have high unemployment,
then the curve shifts in.
What do you think?
True.
Bicycles
Cars
(True/False) If an improved process for
manufacturing cars is introduced, society will be
able to produce more cars and more bicycles.
What do you think?
• Suppose there is high unemployment.
With respect to the PPF, what will
happen?

A. The PPF will shift inward.
B. The PPF will shift outward.
C. We will produce at a point inside the PPF.
D. We will produce at a point outside the
PPF.
What do you think?
Trade
The Circular Flow 1 —my
consumption is your income
The Circular Flow—2
• Barter
– Individuals trading a good or service in
exchange for something they want
• Double coincidence of wants
– Occurs when each party in an exchange

transaction has what the other person desires
The Circular Flow—3
Specialization and Trade—1
• Improvements in technology and
resources can make an economy more
productive.
• Specialization and trade can also create
gains for society.
• Specialization
– The limiting of one’s work to a particular area
• Assume now:
– Two goods (pizza and wings)
– Two people with different abilities in the
production of pizza and wings

• Absolute advantage
– One person can perform one task more
effectively than the other person can.
– Who has the absolute advantage in pizza? In
wings?
Daily Production
Person Pizzas Wings
Debra Winger 60 120
Mike Piazza 24 72
Assume constant opportunity cost
(for simplicity)
Assume constant opportunity cost

(for simplicity)
What does Debra give up to
produce a pizza?
What does Mike give up to
produce a pizza?
• Without specialization and trade:
– Mike and Debra each have to produce their own
wings and pizza
– Each person can only consume what they produce
Without Trade
Person Good Production Consumption
Debra Pizza 40 40
Wings 40 40
Mike Pizza 18 18
Wings 18 18
• With specialization and trade:

– Debra produces pizza and gives 19 pizzas to Mike
– Mike produces wings and gives 47 wings to Debra
– Each person consumes more with trade
With Trade
Gains from
Trade
Person Good Production Consumption
Debra Pizza 60 41 (keeps) + 1
Wings 0 47 (from Mike) + 7
Mike Pizza 0 19 (from Debra) + 1
Wings 72 25 (keeps) + 7
Gains from Trade—1
Opportunity Cost
Person 1 Pizza 1 Wing
Debra Winger
2 wings

(120 ÷ 60)
1/2 pizzas
60 ÷ 120)
Mike Piazza
3 wings
(72 ÷ 24)
1/3 pizzas
(24 ÷ 72)
Daily Production
Person Pizzas Wings
Debra Winger 60 120
Mike Piazza 24 72
• Comparative advantage
– The ability to produce a good at a lower
opportunity cost
• Debra: pizza
• Mike: wings

Opportunity Cost
Person 1 Pizza 1 Wing
Debra Winger
2 wings
(120 ÷ 60)
1/2 pizzas
(60 ÷ 120)
Mike Piazza
3 wings
(72 ÷ 24)
1/3 pizzas
(24 ÷ 72)
• How did we know that Debra and Mike
would both be willing to trade 19 pizzas for
47 wings?
• Terms of trade

– The relative prices or exchange rate of goods
– We can express this as a ratio (Pizza:wings)
– For Debra, it is 1:2
– For Mike, it is 1:3
• As long as the terms of trade are between
the opportunity costs of the trading
partners, the trade benefits both sides.
Person Opportunity Cost Ratio
Debra Winger 1 pizza equals 2 wings 1:2 = 0.50
Terms of trade 19 pizzas for 47 wings 19:47 = 0.40
Mike Piazza 1 pizza equals 3 wings 1:3 = 0.33
• Cast Away (2000)
– Imagine a world in which there was no
specialization and trade.
• Your consumption = your production

• Could you do it?
Economics in Cast Away
Trade-off Between Present
and Future—1
• Short run
– The period in which we make decisions that
reflect our immediate or short-term wants, needs,
or limitations
• Consumers can only partially adjust behavior
• Long run
– The period in which we make decisions that
reflect our needs, wants, and limitations over a
long time horizon
• Consumers have time to fully adjust to market
conditions
• Consumer goods

– Goods produced for current
consumption
• Capital goods
– Goods that help produce other
valuable goods
• Investment
– Using resources to create or buy
new capital
Trade-off Between Present
and Future—2
Capital Goods and Future
Growth—1
Capital Goods and Future
Growth—2
Visualizing Investment—1

• Suppose that instead of producing
pizza, we spent resources in order to
improve pizza-making technology.
• What happens…
– Today?
– Tomorrow?
No InvestmentTime Period
1
2
3
4
Investment in
Capital Goods
• Other examples of long-term investment:

• What is the opportunity cost of
producing capital goods instead of
consumer goods?
A. We give up consumption today.
B. We give up consumption tomorrow.
C. We have less employment today.
D. We have a lower standard of living
tomorrow.
What do you think?
Conclusions
• Economists use models to understand how the
economy works.
• The production possibilities frontier (PPF)
illustrates the benefits of trade and allows us to
describe ways to grow the economy.
• When producers specialize, they focus on those

goods and services for which they have the
lowest opportunity cost and trade with others
who are good at making something else.
Key Economic
Principles1/8/19
Soak up the Sun by Sheryl Crow
https://www.youtube.com/watch?v=KIYiGA_rIls
Agenda for today
• What is economics and what will this
course offer?
• Course overview
• Some ideas all (good) economists
agree about
Big Questions
1. What is economics?

2. What are the 12 principles of economics
according to K&W?
Here are questions for you…
• When you hear the
term “economics,”
what words come to
mind?
• What about when
you hear
“environmental
economics?”
Here are questions for you…
• When you hear the
term “economics,”
what words come to
mind?

• What about when
you hear
“environmental
economics?”
What will this Course Offer?
• Some tools to
– Discover a bit more about how humans work
– Understand public discourse a bit more e.g.
what is so great about competitive markets?
– Offer some additional ways to analyze the
world
• The chance to debate freely and
respectfully some of the most important
ideas of our time
What this Course will Not Do
• Sell any particular economic system

• Advocate for any particular part of the
economy
• Argue that it is all about the money
• Justify actions of governments
What Is Economics?
• The study of one set of ways people make
decisions – about human behavior
• In particular, economics is a set of concepts
(models) of how people behave in the
everyday situation of limited resources.
What are resources? What are models?
• Economy comes from Greek word meaning
"one who manages the household."
Microeconomics and
Macroeconomics
• Microeconomics

– Focuses on individual components of the
economy - individuals, firms, markets.
Environmental and natural resource economics
is mostly microeconomics.
• Macroeconomics
– looks at the economy as a whole after grouping
the individual components
Economic theory versus
empirical analysis
• Theories are the ideas about what
should/may happen in a situation.
This is the “story.”
• Empirical analysis
Examples
• Theory: Air pollution in Beijing is
mainly caused by cars, because we

know there are a lot of cars, #cars is
rising, etc.
• Empirical analysis: each additional
car in Beijing increases 24-hour
average PM2.5 concentrations in the
atmosphere by 0.0002
micrograms/m3
Course Overview
• Lectures due to size of class, with periodic in-
class exercises and open discussions as group.
• I will be throwing out questions for
consideration. If you can, please try to
answer them, ask questions or give
comments. It makes the class more
enjoyable for everyone!!!
• Readings to support each class reading
– Text by Paul Krugman and Scott Wells

• 2 exams, 1 final examination
• 4 problem sets to practice techniques
Review Syllabus
• Available like everything else on D2L
10 Widely Accepted Microeconomic
Principles (Translated from K&W)
1. Scarcity creates need for choices
2. All costs are opportunity costs
3. Many decisions are “marginal”
4. People often respond to incentives
5. Trade can make people better off
6. Equilibrium is an important concept
Microeconomic Principles
Continued
7. Efficiency is important

8. Markets can help us achieve efficiency
9. Government policy can help improve market
outcomes
2 Widely Accepted Macroeconomic
Principles (for another course)
10.One person’s spending is another’s income
11.Spending can be too high or too low (maybe
a bit more controversial)
12.Government policies can change spending
# 1: Scarcity and Choice -1
• In normal words, what does it mean for
something to be scarce?
• In economics, scarcity is when everyone
cannot have all s/he wants for free
• Is scarcity a common situation? Why?
• No Harry Potter-type technologies

• People have wants – maybe not unlimited,
but they exist….
# 1: Scarcity and Choice -2
So……Desirable + Costly = Scarce
# 1: Scarcity and Choice - 3
• Scarcity is what creates the need for
decisions and choices.
• Key questions we need to answer
– How do people make choices in environments
of scarcity?
– What choices do we expect from human
institutions?
– What are some notions of “best” choices?
– How do we know if people made bad choices?
# 1: Scarcity and Choice - 3

• Scarcity is what creates the need for
decisions and choices.
• Key questions
– How do people make choices in environments
of scarcity?
– What choices do we expect from human
institutions?
– What are some notions of “best” choices?
– How do we know if people made bad choices?
In a broad sense, these are the
questions that good
economics tries to answer
• What can be said about scarcity?
A. Scarcity forces us to make choices.
B. Scarcity doesn’t affect the super-wealthy.
C. Scarcity only affects commodities such as
oil.
D. Scarcity generally doesn’t affect our day-

to-day living.
How Would you Answer?
What is the Cost of Watching
Gangnam Style and Similar Videos?
#2: All Costs Are Really
Opportunity Costs—1
• Opportunity Cost
– The highest-valued alternative that must be
sacrificed to get something else
• Not all alternatives—just the next-best choice
• What is the opportunity cost of
attending college?
• What about room and board?

Opportunity Costs— 2
• What is the cost of coming to
this class?
• What is the cost of missing this
class?
Opportunity Costs—3
Go to the board
• What are some resources you have
to make decisions about?
• How do you make those decisions
A couple more questions
• How many apps will you download in
your lifetime?
• How many meals will you have in

restaurants next year?
• How many times will you go to
movies next semester?
You get the point………..
• Economic thinking
– Something resembling a
purposeful evaluation of available
opportunities to make the best
decision possible
• Marginal analysis
– Implies decision-makers may
evaluate whether the benefit of
one more unit of something is
greater than the cost
#3: In Other Words….Much Economic
Decisionmaking is “Marginal”—1

#3: Silly example of marginal
analysis—2
• Suppose you are vacuuming your living
room. Will you move the couch and china
cabinet to vacuum under them?
– Marginal benefit
• Small additional amount of carpet is cleaned
– Marginal cost
• Much more time and effort
#3: Not-so-silly example of
marginal analysis—3
• The governor decides to increase
funding for education. However, this
will mean decreasing funding for
infrastructure.
• We would suppose an individual will do

an action if…
A. the probability of success is greater than
50 percent.
B. the action has positive benefits.
C. the costs of the action are small.
D. marginal benefits ≥ marginal costs.
Suppose this marginal
decisionmaking is correct, then...
• Incentives
– What are you trying to
achieve? What
motivates YOU?
• A simple model of human behavior– people
try to do the best they can
#4: People often respond to
incentives—1

#4: Incentives Matter—2
• Who likes standing in line at grocery
store? Who likes spending more money
than you have to?
• Probably on average not right to model
people as wanting to waste resources
– People not optimizing robots
– Things other than money and self-interest
matter, But………
• The point: Opportunity costs should
affect decisions
#5: Trade can make people better
off
• Who likes a good garage sale? What is so
great?
• The so-called “demand” side
• People have different valuations of goods and

services – people are different!
• People and institutions (e.g. firms) also have
different qualities and quantities of resources ->
skills and natural resources
• Opportunity costs differ
So, specialization is quite important
for efficiently using resources -> the
supply side
#5: Idea is that trade creates
value
• Markets
– Institutions that bring buyers and sellers
together to exchange goods and services
• Trade
– The voluntary exchange of goods and
services between two or more parties

– People exchange only if it benefits them (see
marginal analysis slides)
• Without trade, you would have to
produce everything you consume.
• Trade fosters exchange of goods
and promotes specialization.
• Comparative advantage
– The situation in which an individual,
business, or country can produce at a
lower opportunity cost (i.e. give up
less) than others
#5: Trade Creates Value—2
#5: Trade
• From your experience and understanding,
is it true that trade can make everyone
better off?

• What problems have you observed that
may sometimes call this assertion into
question?
#6 – Equilibrium is an
important concept
• Natural “resting” place of a system
• In this course, market equilibria will
be important.
• What would be the characteristics of
a good equilibrium? Bad equilibrium?
#7 – Efficiency – good use of
resources is a very important goal
• “Best use of resources”
• Big topic. More to come
#8 – Markets can help achieve

efficiency
• Billions of decisions are made every
day
– Need to find a way so things valued highly are
done and low valued activities are left out.
• Net benefits (e.g. profit) play key roles
in signaling value. Again, not
everything….
• Competition and entry are important
as we will see
#9: Governments and other nonmarket
institutions can help improve market
(and non-market) outcomes
• What does it mean for markets to not
do well?
• Key Examples
– Market power
– Externalities

– Equity
• Protect/provide “services” markets
may not provide (e.g. environmental)
Conclusions
• Economics tries to understand human behavior
vis-à-vis resources. This is what makes the
study of economics so fascinating.
• There are some microeconomic ideas that are
pretty well-accepted and relevant for us
1. Scarcity creates need for choices
2. All costs are opportunity costs
3. Many decisions are “marginal”
4. People often respond to incentives
5. Trade can make people better off
Conclusions continued
6. Equilibrium is an important concept

7. Efficiency is an important goal.
8. Markets can help achieve efficiency
9. Governments and other nonmarket
institutions can help improve outcomes.
Problem Set #1
Opportunity Costs and Scarcity
ECON 201
PLEASE TYPE YOUR ANSWERS ON THIS SHEET AND
UPLOAD TO D2L.
GRAPHS MAY BE HAND DRAWN
1. Please graph the relationships between the variables listed
below. Choose your own units and scales for the axes. Label
your axes but your drawing need not be perfectly to scale. In
one sentence, please describe the relationship.
a) Hours spent per week in varsity sports at PSU and a student’s
grade point average;
b) Temperature at a beach and number of people at the beach;
c) Application of water (in gallons per week) and growth (in
inches per week) of corn plants observed in a field of corn;
2. Maria can read 20 pages of economics an hour. She can also
read 50 pages of sociology an hour. She spends 5 hours per day
studying
a) Draw Maria’s production possibilities frontier for reading
economics and sociology. Please discuss the shape of your PPF

and explain why it represents the above tradeoffs.
b) What is Maria’s opportunity cost of reading 100 pages of
sociology? Please explain in words.
3. Capitalizing on its natural advantages, Oregon focuses on
tourism and pinot noir grapes. The possible production
combinations are given in the table below.
Year 2019 Production Possibilities in Oregon
Tourists serviced per year (thousands)
Grapes produced in tons per year
(thousands)
100
0
85
37
70
47
55
55
40
61
0
65
a) Plot a graph of the production possibilities frontier for the
economy.
b) Does the principle of increasing opportunity cost hold in this
case? Please explain
c) Plot a point on the graph that you think might represent a
possible consumption point (recall that the actual point chosen
will depend not only on scarcity and opportunity cost, but also
on peoples’ preferences).
d) Suppose half the grape pickers go on strike, reducing output

by half. How would this affect the graph? Plot a point or
redraw the graph to represent this development.
e) Suppose that a new more productive pinot noir grape variety
is developed that boosts grape production by 10%. Alter the
table above to reflect this technological development and show
on your graph.
3. Below please find the production possibilities frontiers
(PPFs) of Ghana and Spain.
Ghana PPF
Spain PPF
Possible Combinations
Possible Combinations
Cars
T-shirts
Cars
T-shirts
0
8,000
0
12,000
100
6,000
100
9,000
200
4,000
200
6,000
300
2,000
300
3,000
400

0
400
0
a) Given these PPFs, which country would you predict would
specialize in each good? Why?
b) Suppose a free trade deal is negotiated. What is the range of
potential terms of trade?
2 | Page

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