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Economics for Leaders. Let’s Learn Some ECON. Don’t try to write down everything I say Lectures will be fast-paced with lots of information and lots of interaction Pay attention and get involved As the week ends, it will come together You can have all of these slides and materials.
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Let’s Learn Some ECON • Don’t try to write down everything I say • Lectures will be fast-paced with lots of information and lots of interaction • Pay attention and get involved • As the week ends, it will come together • You can have all of these slides and materials
Shining Students • Each morning I will award a prize to one or two students who shined the day before • If you want to win then you need to be alert, engaged and participate in a meaningful way • Let’s have some FUN! • Post-Test at the end of the week (80%)**
Joke of the Day Joke Of The Day At the end of the day, always remember…
Joke of the Day Joke Of The Day You can tune a piano, but…
Joke of the Day Joke Of The Day You can’t TUNA FISH!
Joke of the Day Joke Of The Day
Hypotheses for the Week • Human Prosperity and social cooperation develop spontaneously in societies that protect property rights and encourage voluntary trade/exchange. • Developing an economic way of thinking empowers people to understand and explain the world in which we live.
Why are some countries rich and others poor? Why are some countries rich/poor?
Opinions matter and are of equal value at the ballot box. But on matters of rational deliberation the value of an opinion is determined by the knowledge and evidence on which it is based. Statements of opinion should initiate the quest for economic understanding, not end it. Economic Reasoning Principle #5: Understanding based on knowledge and evidence imparts value to opinions.
The Rules of the GameInstitutions & Norms • The rules of the game shape how decisions are made. • Decisions determine outcomes. • People respond to incentives in predictable ways.
Scarcity • Something is scarce if society cannot have all it wants at no cost. • By cost we mean OPPORTUNITY COST. • Some things are more scarce than others. • Relative scarcity is determined by what must be given up.
Choices • Because the world is characterized by scarcity, we are forced to make choices. • We must allocate scarce resources among competing uses. • Wood that is used for tables and chairs cannot be used for crutches (or forest). • Land that is kept undeveloped cannot be used to build housing for the poor. • Time
Opportunity Cost • Because we are forced to make choices (scarcity), we are faced with costs. • The cost of any choice is what is given up. • Choosing is REFUSING!
Economic Reasoning Principle #1: People choose, and individual choices are the source of social outcomes. • Scarcity necessitates choices: not all of our desires can be satisfied. People make these choices based on their perceptions of the expected costs and benefits of the alternatives.
Economic Reasoning Principle # 2: Choices impose costs; people receive benefits and incur costs when they make decisions. • The cost of a choice is the value of the next-best alternative foregone, measurable in time or money or some alternative activity given up. • What did you give up to be here?
choices → TRADE-OFFS → forgone alternatives OPPORTUNITY COST! • choosing is REFUSING! • the cost of something is what you give up. OPPORTUNITY COST!
Economic Reasoning Principle # 3: People respond to incentives in predictable ways. • Choices are influenced by incentives, the rewards that encourage and the punishments that discourage actions. When incentives change, behavior changes in predictable ways. • People do what makes them better off. • Marginal Benefit, Marginal Cost (MB > MC).
A Fact Regarding Benefits • The benefit (value) of the next one will eventually be lower. • Diminishing marginal benefit (value). • Value is based on benefit received. • Rolos, Washing machines, automobiles, houses, vacations.
Which is more realistic? Production Possibilities Frontier (PPF): Graphical representation of the possible goods/services an economy can produce at a given time with the available resources and technology
A Fact Regarding Costs • The cost of the next one will eventually be higher. • Rising marginal cost. • Cost is based on what is given up. • Wheat vs. Oranges, work, vacations, China and India growing economies
Choose Between Alternatives • Do it if…… • MB > MC
Big Ideas • choices → TRADE-OFFS → forgone alternatives • OPPORTUNITY COST! • choosing is REFUSING! • the cost of something is what you give up. • OPPORTUNITY COST!
