Unit 1
Welcome to Economics!
Reading
OpenStax: Ch. 2 "Choice in a World of Scarcity"
BJU: Ch. 1
Topics
Lab
"Auctioning Off Dollars" classroom experiment
OpenStax: Ch. 2 "Choice in a World of Scarcity"
BJU: Ch. 1
Topics
- How individuals make choices
- Scarcity & budget constraints
- Opportunity cost
- Utility
- Sunk costs
- Production possibilities curve
Lab
"Auctioning Off Dollars" classroom experiment
Below: Using the ideas in this Unit, "What's wrong with the picture?"
Lecture outline
Economics is the science of decision-making
Evaluating alternatives
The opportunity cost of something is the satisfaction of option #2 which you forfeited by going with option #1.
You always have opportunity costs when deciding between two alternatives. In other words, there are always trade-offs. You probably factor these into your decisions without even realizing it.
In economics, we consider both money costs AND opportunity costs. (In finance, we don't consider opportunity cost).
Economics is the science of decision-making
- We have limited resources
- But we have unlimited wants
- Therefore, we must make choices all the time
- This is called the "Insatiability-Scarcity Conflict"
Evaluating alternatives
- Cost-benefit analysis using "opportunity benefit and opportunity cost"
- Payback period analysis
- Return on investment (ROI)
The opportunity cost of something is the satisfaction of option #2 which you forfeited by going with option #1.
You always have opportunity costs when deciding between two alternatives. In other words, there are always trade-offs. You probably factor these into your decisions without even realizing it.
In economics, we consider both money costs AND opportunity costs. (In finance, we don't consider opportunity cost).
"Good intentions" do not guarantee desirable outcomes. Basing a decision on good intentions alone - without considering the trade-offs - can lead to "unintended consequences" or "adverse secondary effects".
The true value of something is its "Utility"
Budgets are important for decision-making. How do you develop a budget for something?
- Politicians often propose new laws or programs based on good intentions only.
- Individuals do this also.
- This can result in adverse consequences far in the future.
The true value of something is its "Utility"
- Utility = Usefulness, satisfaction, or happiness from the buyer's/user's perspective
- Illustrated by the "Diamond-Water Paradox"
Budgets are important for decision-making. How do you develop a budget for something?
- We will look at the Budget for the U.S. Government
- Spring vacation budget homework assignment
Activity
"Auctioning-off Dollars" - A classroom experiment in sunk costs and marginal costs
Learning objectives: decision-making using marginal analysis, sunk costs, competition
Homework (refer to class emails for due dates)
"Auctioning-off Dollars" - A classroom experiment in sunk costs and marginal costs
Learning objectives: decision-making using marginal analysis, sunk costs, competition
Homework (refer to class emails for due dates)
| 1._introduction_to_economics_homework_questions.docx |
| 1._spring_vacation_budget_exercise.docx |
| 1._economics_lecture_1_-_intro_choices_cost-benefit.pptx |