The Economic Way of Thinking

1. The Economic Way of Thinking Personal Finance Institute July 21, 2014

3. Flash Drive’s Contents

4. Test Your Best!

5. http://www.vcee.org/resources/view/14

6. Online Resources Part II

7. Unit Two- Economic Systems

8. Unit Two- Economic Systems

9. Unit Two- Economic Systems

10. What is Economics? It’s not just about money!

11. * Or…Let’s Learn Economic Concepts in Two Slides ECONOMICS 101*

12. ECONOMICS 101 Economics is the study of _________ (as they pertain to _________, _________, and the _________). choices consumers producers government Every nation has productive resources __________________ Resources from the earth, unaltered by man __________________ People’s effort, skills, and knowledge __________________ Man-made resources used over and over natural human capital __________________ Goods used in production to become part of a product intermediate which are used to produce goods services and to be __________________ or __________________ with money (savings). bartered purchased

13. however Productive resources, and therefore, goods and services, are limited Human wants (needs) are basically unlimited resulting in SCARCITY Consequently, buyers (consumers) and sellers (producers) have to make economic __________________ (resulting in __________________ __________________) choices opportunity cost when answering three basic economic questions ___________ ___________ Government answers ?’s ___________ goods and services will be produced? ___________ will the goods and services be produced? ___ _______ will the goods and services be distributed? __________ ___________ Buyers and sellers answer ?’s What How To whom command economy market economy Answering these questions most efficiently creates the need for ___________________ and ___________________ resulting in trade. specialization interdependence decision making scarcity Economics: ___________ - __________ under ___________.

14. Definition of Economics The study of how people make decisions when faced with a scarcity of resources. What personal resources do you possess? What choices do you make due to scarcity?

15. What is scarcity? Why is it so crucial to economics? • Scarcity exists when resources are limited and people’s wants are unlimited. • Scarcity forces people to make choices about the use of resources.

16. Cost – Benefit Analysis Tool used for deciding whether or not an action should be taken by comparing its benefits and costs. Importance of Tool For Future Decisions – an intentional consideration of less obvious decision variables that may be important to the outcome For Past Decisions – provides context for the decision - helping to understand why the action was taken and evaluate whether we made the most rational decision.

17. Tool #1: Cost – Benefit AnalysisPersonal Example - Past Should I attend this in-service?

18. Tool #1: Cost – Benefit AnalysisPersonal Example - Past Should I attend this in-service? 1 = not very important 10 = very important

19. Tool #1: Cost – Benefit AnalysisPersonal Example - Past Should I attend this in-service? 1 = not very important 10 = very important

20. Tool #1: Cost – Benefit AnalysisPersonal Example - Past Should I attend this in-service? 1 = not very important 10 = very important What was given up when I made my choice? Was this OK?

21. Decision-Making ModelsPersonal Example Tool necessary when deciding among various alternatives (not…to do or not to do one alternative) by considering the costs and benefits of each alternative against predetermined criteria .

22. How do you decide? PACED Identify the problem List alternatives or choices State the criteria – What’s most important? Evaluate Decide

24. P: STATE THE PROBLEM Should Lincoln go to Ford Theater? ?

25. Guide to Economic Reasoning (HDG) Tool is used to “think like an economist” by allowing one to (1) make better decisions and (2) make sense of situations in which the facts seems to be at odds with our sense of what ordinary experiences and good judgment would suggest. Economic Reasoning = Critical Thinking = Life Skill

26. The Guide to Economic Reasoning

27. 1. People choose. People manage their lives by making choices. They choose the alternative which seems best to them because it involves the least cost and greatest benefit. • Examine the costs and benefits of the alternatives that are available. • Identify the choice being made and who is making that choice.

28. 2. All choices involve costs. All decisions come with costs. “There is no such thing as a free lunch.” • Determine what is being given up when a choice is made. • Opportunity cost is the second best choice people give up when they make their best choice

29. 3. People respond to incentives. Incentives are actions or rewards that encourage people to act. When incentives change, people's behavior changes in predictable ways. • Identify the incentives that are motivating each choice. • Analyze how and why a person’s behavior changes when responding to incentives. Incentives

30. 4. Economics systems influence individualchoices and incentives. How people cooperate is governed by written and unwritten rules. As rules change, incentives change and behavior changes. • Examine the rules of the economic system and identify who created these rules. • Identify ways the rules have changed and how these changes have influenced behavior.

31. 5. People gain when they trade voluntarily. People can produce more in less time by concentrating on what they do best. The surplus goods or services they produce can be traded to obtain other valuable goods or services. • Determine whether trade is taking place and identify the reasons for action or inaction.

32. 6. The consequences of choices lie in the future. Economics stresses making decisions about the future because it is only the future that we can influence. We cannot influence things that have happened in the past. • Analyze how decisions made in the past have influenced the present • Predict how decisions made today will change the future.

33. Understanding the Market System • A market is any kind of arrangement that allows the potential buyers and sellers of a particular good or service to interact. • Face to face transactions are not necessary with today’s technology.

34. In a free market system… Decisions about what, how, and for whom to produce are made without any centralized coordination or control . How are these questions decided in a free market system?

35. The Magic of Markets • What did you have for dinner last night? • How did this type of food arrive in your house? • How did you know what and how much to buy for dinner? • How did the store it was purchased from know that someone would buy it? • How does the local fast food restaurant know how many workers to schedule for each shift?

36. The Magic of Markets • What would happen if there was a sudden change in consumer preference for a good and buying patterns where significantly reduced? • What would happen if higher productions costs significantly reduced the supply of a good?

37. Don’t take Markets for granted! Markets provide incentives for producers to make and offer to sell their goods and services day after day, year after year, in the marketplace. (supply) Markets provide consumers with the many types and qualities of goods and services that want. (demand)

38. The Economic Way of Thinking Financial Fitness for Life Grades 6-8 Lesson 1

44. Housing:Deciding to Rent of Buy Personal Decision Making Lesson 11

47. Seller Cards

48. Buyer Cards

49. Why Stay Up Late? The Great Economic Mystery Book Lesson 2