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Economics

Economics. The word economy comes from a Greek word for “one who manages a household.” Economics is the study of how society manages its scarce resources. Resources: Factors of Production Land (natural resources) Labor (workers) Kapital (factory, tools, equipment)

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Economics

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  1. Economics • The word economy comes from a Greek word for “one who manages a household.” • Economics is the study of how society manages its scarce resources. Resources: Factors of Production • Land (natural resources) • Labor (workers) • Kapital (factory, tools, equipment) • Entrepreneurship (risk, innovation)

  2. Use Resources to Produce Goods & Services • Why can’t we have all we want? • Available resources are limited. • Human wants/desires (needs) are boundless! • What do we call this?

  3. Use Resources to Produce Goods & Services • The management of society’s resources is important because…. • Resources are SCARCE! • Resources are LIMITED! • Can’t have everything we want, desire (need)! • What to produce? • How to produce it? • Who gets it?

  4. Economics & Scarcity

  5. A Household / Economy Faces Many Decisions • Who will work? • What goods should be produced? • What resources should be used in production? • What prices should goods be sold for? • Import/Export? • Guns & Butter?

  6. A Household / Economy Faces Many Decisions • How much education…who should get it? • How much military…who should get it • How much transportation…who should get it? • How much health care? • What type of health care? • Who should get it? • Who should pay for it?

  7. Choose Between Alternatives • choices →TRADE-OFFS → forgone alternatives → OPPORTUNITY COST → CHOOSING is REFUSING! • Whether to study or go out on a date? • Whether to go to class or sleep in? • Whether to go to college or to work? • Adopt a new technology? • Perform an operation (heart by-pass, hip replacement)? • Develop a new drug (new, improved)? • Annual pelvic exam? • The opportunity cost of an item is what you give up.

  8. There Is No Such Thing As A Free Lunch • The cost of something is what you give up. • Free ticket to a Dave Matthews concert? • Getting bumped from a flight? • Where to live, work, shop? • The war on terror? • Auto/financial industry bailout or economic stimulus? • Health care reform? • Where would you be if you weren’t here? CHOOSING is REFUSING!

  9. Thinking On The Margin • Incremental adjustments • Stay open another hour? • Study one more hour for economics exam? • Eat one more slice of pizza? • How many years of college? • Additional medical care? • Adopt electronic information system? • Should we build a new hospital? • Should we save a life? CHOOSING is REFUSING!

  10. Is Health Care Like Ice Cream?

  11. Thinking On The Margin • In the news….. • Downsizing to a studio apartment in Minneapolis means Courtney Zintner’s living room is also her bedroom and her office, but she is saving more than $900 a month and has a shortened commute.

  12. There is no such thing as a FREE LUNCH • Quote by Thomas Sowell….. “What is YOUR solution?” “There are no solutions,” I said. “There are only trade-offs.” “The people DEMAND solutions!” she shot back angrily. I replied, “the people can demand square circles if they want. But that doesn't mean that they will get them.” Opportunity Cost!

  13. Markets: Choices/Rationing Back to Scarcity: What’s the Question? And what does opportunity cost have to do with it? Should we ration? Given that we MUST ration, what is the best mechanism?

  14. Markets: Choices/Rationing Methods of Allocation • Command (force) • Random (lottery) • Age, beauty, height, skin color • First come – first serve • Share equally • Markets! • Prices! (S&D, willingness to pay, willingness to sell)

  15. Markets: Choices/Rationing Methods of Allocation • random (lottery) • age, beauty, height, skin color • first come – first serve • share equally • auction • prices (willingness to pay) • Markets

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