Economics: The Study of Limited Resources and Unlimited Wants

1. Introduction

2. What is economics? • What statements related to economics have you heard recently? • It’s influence is all around us! • In our clothes! • In our workplace! • In our politics!

3. Economics is … • Social Science • Study of limited resources and unlimited wants • Way of Thinking

4. What resources are limited?

5. What resources are limited? • Money • Time • Texans tickets • Concert tickets • Clean water

6. Economic Way of Thinking • Scarcity reality forces people, business, communities, governments, and societies to make choices.

7. Economics Way of Thinking Choices! • Do I go to bed or stay up and watch TV? • Do I come to class or sleep in late? • Do I spend $20 on a nice dinner or do I save the money?

8. Economics Way of Thinking Choices! • Every economic decision has costs: money, time, effort, or a lost opportunity to do something else. • We make choices that we believe are in our best interests by comparing what we gain to what we must give up. Cost-Benefit Analysis

9. Benefits of attending to college Costs of attending to college Economics Way of Thinking Cost-Benefit Analysis Trade-off

10. Benefits of attending to college Costs of attending to college Economics Way of Thinking Cost-Benefit Analysis Trade-off

11. Benefits of attending to college Costs of attending to college Economics Way of Thinking Cost-Benefit Analysis Trade-off

12. Economics Way of Thinking Trade-off • When I go to college, I trade…..

13. Opportunity Cost is … …what you must give up when you make a choice. • What is the opportunity cost of taking an art course instead of a math course? • What is the opportunity cost of downloading an album from iTunes for $9.99? • What is the opportunity cost of going out to the movies before a big test?

14. Economics Way of Thinking Marginal Cost - Marginal Benefit Analysis • Measuring cost or benefit for one additional unit • Studying chemistry for one more hour and economics one less hour • Attending college for one more year instead of going to work Making decisions at the margin

15. Economics Way of Thinking Attending College Cost-Benefit Analysis $1,000,000

16. Economics Way of Thinking • Incentives matter! • You decide to buy your school supplies at Walmart instead of CVS because the cost is less. • You decide to major in nursing instead of teaching because there are more jobs in nursing.

17. Economic Principles of Choice • Resources are scare. • Opportunity cost is true cost. • “How much” is a decision at the margin. • People respond to incentives to make themselves better off.

18. You decide that four classes are enough for this semester and decide against taking a fifth class. You decide to buy gasoline at the corner store because the price is less than the station near the school. The Houston city manager has decided that the million dollars will be used to patch street “pot holes” instead of building city sidewalks. Resources are scare. Opportunity cost is true cost. “How much” is a decision at the margin. People respond to incentives. Examples of Choice

19. Market Economy • Interaction of choices • My choices affect your choices, and your choices affect my choices.

20. Economic Principles of Interaction • There are gains from trade because of specialization. • Because people respond to incentives, markets move toward equilibrium. • Resources should be used efficiently to achieve society’s goals. • Because people usually exploit gains from trade, markets usually lead to efficiency. • When markets don’t lead to efficiency, government intervention can improve society’s welfare.

21. At a college tutoring co-op, student can arrange to provide tutoring in subjects in which they are good in return for receiving tutoring in subjects they are poor in. The local municipality imposes a law that requires bars and night clubs near residential areas to keep their noise levels below a certain level. On the college website, books of a given title with approximately the same level of wear and tear sell for about the same price. To provide better care for low-income patients, the local municipality has decided to close some underutilized neighborhood clinics and shift funds to the main hospital. There are gains from trade because of specialization. Markets move toward equilibrium. Resources should be used efficiently to achieve society’s goals. Markets usually lead to efficiency. When markets don’t lead to efficiency, government intervention can improve society’s welfare. Examples of Interaction

22. Group Work • There are gains from trade. • Markets move toward equilibrium. • Resources should be used efficiently to achieve society’s goals. • Markets usually lead to efficiency. • When markets don’t lead to efficiency, government intervention can improve society’s welfare.

23. Economic Principles of Economy-Wide Interaction • One person’s spending is another person’s income. • Overall spending sometimes gets out of line with economy’s productive capacity. • Government policies can change spending. Inflation Recession

24. The White House urged Congress to pass a package of temporary spending increases and tax cuts in early 2009, a time when employment was plunging and unemployment soaring. Oil companies are investing heavily in projects that will extract oil from the “oil sands” of Canada. Near the projects in Edmonton, Alberta, restaurants and other consumer business are booming. In the mid-2000s, Spain, which was experiencing a big housing boom, also had the highest inflation rate in Europe. One person’s spending is another person’s income Overall spending sometimes gets out of line with economy’s productive capacity. Government policies can change spending. Examples of Economy-Wide Interactions

25. Assignment • Read Chapter 1 • Complete on paper to turn in • Page 23, Problem 1 • Page 24, Problems 8 and 11 Due beginning of class on Thursday.

26. Make a list of … 3 2 1 - - • Three new vocabulary words from today. • Two things you remember from today. • One thing you would like to know more about.

27. CHOICE • Resources are scare. • Opportunity cost is true cost. • “How much” is a marginal decision. • People respond to incentives.INTERACTION • There are gains from trade. • Markets move toward equilibrium. • Resources should be used efficiently to achieve society’s goals. • Markets usually lead to efficiency. • When markets don’t lead to efficiency, government intervention can improve society’s welfare. ECONOMY-WIDE INTERACTION • One person’s spending is another person’s income • Overall spending sometimes gets out of line with economy’s productive capacity. • Government policies can change spending.