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An Economic Way of Thinking

An Economic Way of Thinking. Ms. Ramos Alta Loma High School. Standards Addressed: 12.1.1-12.1.3 & 12.2.1-12.2.2. Introduction. Where did economics come from?. Ms. Ramos.

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An Economic Way of Thinking

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  1. An Economic Way of Thinking Ms. Ramos Alta Loma High School Standards Addressed: 12.1.1-12.1.3 & 12.2.1-12.2.2

  2. Introduction Where did economics come from? Ms. Ramos

  3. http://www.ft.com/cms/s/8f2829fa-0daf-11de-8ea3-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8f2829fa-0daf-11de-8ea3-0000779fd2ac.html&_i_referer=http://www.ft.com/cms/s/8f2829fa-0daf-11de-8ea3-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8f2829fa-0daf-11de-8ea3-0000779fd2ac.html&_i_referer= Ms. Ramos

  4. Birth of Economics • The Wealth of Nations, 1776 • Argued competition is the key to a healthy economy • “father of modern economics” Adam Smith http://newcreationperson.wordpress.com/2009/09/01/does-the-bible-support-capitalism/ Ms. Ramos

  5. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life.” • Adam Smith Ms. Ramos

  6. What is Economics All About? Ms. Ramos

  7. In pairs: • What do you think economics is about? • What problem has to be dealt with? • What “tools” will we be using this semester? Ms. Ramos

  8. 1- Everyday Mysteries and Economic Enigmas • Economic enigmas • Puzzles/riddles that might be explained through analysis Ms. Ramos

  9. Steven E. LandsburgThe Armchair Economist: Economics and Everyday Life, 1993 • “First, it is about observing the world with genuine curiosity and admitting that it is full of mysteries. Second, it is about trying to solve those mysteries in ways that are consistent with the general proposition that human behavior is usually designed to serve a purpose” Ms. Ramos

  10. Economic Enigmas • Why is it legal to drive while eating a cheeseburger or drinking coffee but illegal while talking on a cellphone? • Why do most stores place men's fashion on the lower floors and women's fashions on the higher floors? • Why are seat belts required in cars but not school buses? Ms. Ramos

  11. Why is milk sold in rectangular containers while soda is sold in round ones? • Why are DVDs sold in larger packages than CDs when the disc is the same size? • Why does Apple sell its black laptops for $150 more than the identically configured white ones? Ms. Ramos

  12. Resources Limited/ scarce Alternative uses Wants unlimited 2 Branches of Economics Micro Individuals, households, businesses Macro Economy as a whole 2- How People Use Limited Resources to Satisfy Unlimited Wants Ms. Ramos

  13. 3- The Science of Decision Making http://meghnavillagerestaurants.webs.com/malaysiancafe.htm http://www.withamymac.com/news/2009/10/15/unhealthy-salads/ • How do people make decisions? • Should I buy a salad or burger for lunch? Ms. Ramos

  14. If a salad, lettuce or spinach? Do I add tomatoes, bell peppers, cucumbers? What salad dressing? http://www.texomaliving.com/spring-salad http://www.blogher.com/special-offer-wish-bone http://blogs.smarter.com/homegarden/tag/salad/ Ms. Ramos

  15. http://find.myrecipes.com/recipes/recipefinder.dyn?action=displayRecipe&recipe_id=10000000226398http://find.myrecipes.com/recipes/recipefinder.dyn?action=displayRecipe&recipe_id=10000000226398 http://www.rachelleb.com/tag/in-n-out/ • Do I get a beef burger or turkey burger? Ms. Ramos

  16. 4- What Is and What Should Be: Positive vs. Normative Economics • Positive Economics • EX: What impact will increased enrollment, salary increases, and rising maintenance have on next year’s budget? • Normative Economics • EX: What actions should we take now to reduce expenses in order to balance next year’s budget? • ** Most economists are positive economists Ms. Ramos

  17. Ms. Ramos

  18. On the left side of your notebook: Ms. Ramos

  19. What 7 Principles Guide an Economic Way of Thinking? Ms. Ramos

  20. P1: Scarcity Forces Tradeoffs • Desires unlimited BUT resources are scarce • Scarcity-forces-tradeoffs principle • PEOPLE MAKE CHOICES • No-free-lunch principle Ms. Ramos

  21. P2: Costs vs. Benefits • Costs: what you spend • Benefits: what you gain • Costs-vs-benefits principle: ppl choose x when benefit greater than cost Ms. Ramos

  22. P3: Thinking at the Margin • Margin: border • Thinking-at-the-margin principle: most choices are about a little more/less, rather than a whole change • Marginal cost: what give up to add 1 unit • Marginal benefit: gain by adding 1 unit Ms. Ramos

  23. Incentives are the cornerstone of modern life. And understanding them- or, often, ferreting them out- is the key to solving just about any riddle, from violent crime to sports cheating to online dating. • Steven D. Levitt & Stephen J. Dubner, • Freakonomics, 2006 Do you think the above statement is true? Discuss with a partner. Ms. Ramos

  24. P4: Incentives Matter http://www.midwestsportsfans.com/2008/12/2008-hesiman-trophy-candidates/ http://pages.cthome.net/tollandhistorical/Jail.htm • Incentives-matter principle: ppl respond in predictable ways • Positive & negative Ms. Ramos

  25. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than buy. The taylor [tailor] does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a taylor. • Adam Smith, The Wealth of Nations, 1776 Ms. Ramos

  26. P5: Trade Makes People Better Off • Trade-makes-people-better-off principle: focus on what do well & trade for the rest– we will end up with more & better choices Ms. Ramos

  27. P6: Markets Coordinate Trade • Markets-coordinate-trade principle: mkts are better at coordinating exchanges btn buyers & sellers • Invisible hand- Adam Smith Ms. Ramos

  28. P7: Future Consequences Count • Future-consequences-count principle: decisions made today have future consequences • Law of unintended consequences Ms. Ramos

  29. P8: Monetary & Fiscal Policies Affect People’s Choices • Ex; income redistribution, regulation of prices, trade policies, gov regulations Ms. Ramos

  30. P9: Skills & Knowledge Influence Income Ms. Ramos

  31. With a partner discuss: • Which principle do you think is most important? Why? Ms. Ramos

  32. What Tools Do Economists Use? Ms. Ramos

  33. http://www.liceoscientificodascanio.it/prof/Eng_prof_pn.html http://opinionsandexpressions.wordpress.com/2008/09/12/large-hadron-collider-and-human-curiosity/ http://www.blogtrepreneur.com/2007/11/15/the-economics-behind-selling-blog-advertising/ http://www.errorsofenchantment.com/2010/10/25/texas-an-economic-model-for-new-mexico/ Ms. Ramos

  34. Scientific Method • Data • Factual info • Analyze existing & historical Ms. Ramos

  35. Graphs • Visual representation • Variables: quantity that can vary • Examine relationships • Axis:x- horizontal, y- vertical • Curve: any line of plotted data points Ms. Ramos

  36. http://www.youtube.com/watch?v=jbkSRLYSojo Ms. Ramos

  37. Economic Models: Simplified Representations of Reality • Allow focus on effects of one change at a time • Structured thinking • Rational-behavior model • Decision to fill wants & needs to greatest extent • Decisions based on own best interest Ms. Ramos

  38. Example 1 • Pollyanna Pumpernickel, a mother of two, decides to purchase a 16 ounce bag of Double Dot Caramel Nougat Clusters at the MegaMart Discount Super Center for $1.29 rather than paying $1.79 for a 12 ounce bag at the Curious Curt's Convenience Corner. Ms. Ramos

  39. Example 2 • Professor Grumpinkston, of the Ambling Institute of Technology, decides to use the same textbook for his course in the spring semester as the fall semester so that he does not have to prepare a new set of lecture notes. Ms. Ramos

  40. Example 3 • Roland Nottingham, a registered voter, decides not to vote in the Shady Valley mayoral election because the incumbent mayor, Victor Thurgood is the only candidate and he needs to spend election day mowing and fertilizing his yard before the rain comes. Ms. Ramos

  41. In each case, the chosen option is the rational course of action that leads to an improvement in satisfaction for the decision maker. The choice generates more satisfaction rather than less. Ms. Ramos

  42. Models are approximations • Explain & predict how the economy operates • “Ceteris paribus” • “other things being equal” • Change only one aspect Ms. Ramos

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