1. 1 Section 1.3 Economic Choices and Decision Making

2. 2 If you know the rules of the game, do you stand a better chance of winning?

3. 3 What Do You Make Choices About Every Day? How do you make good decisions on what to do and how to do it?

4. 4 How do you choose? One? Or the other?

5. 5 We constantly make decisions in lives. As the world becomes more complex and more choices are available, decision-making can becomes very difficult. We can allow ourselves to be overwhelmed and let life make our decisions. I usually feel that the fewer choices I have, the easier and more effectively I can make a decision. How do I reduce the range of choices I have so that I am less harried about making a decision? At this point, think how much easier it would be to make decisions if we had a tool to help simplify matters

6. 6 When I go the store, I see hundreds of items arranged to catch my attention. And then I see something that I think is really interesting! Should I buy it, should I shop around elsewhere for it, is it good value for money, what am I going to do with it? … I just can’t make up my mind. Economics has a simple tool! I draw a mental box just like on page 20! Is this a need or a want? What value it will bring to my life: high or low? If the value is high and it is a need, then I buy it. If the value is low and it is a want, then I don’t bother with it. If the value is low but it is a need, then I might shop around for it. If the value is high and it is a want but not a need, then I might consider treating myself to it. Therefore, I essentially break down a decision into simple terms that help me make up my mind. This is simplified Cost-Benefit Analysis!

7. 7 Thinking Like an Economist In what ways do economists make decisions?

8. 8 The Production Possibilities Frontier is the second model Economists use. The Production Possibilities Frontier is also known as the PPF. The PPF is a basic workhorse model in economics. Important for understanding some basic issues in economics.

9. 9 The PPF helps to illustrate many concepts. Concepts Illustrated by the Production Possibilities Frontier Scarcity Efficiency Tradeoffs Opportunity Cost Economic Growth

10. 10 The Production Possibility Frontier - What Is It? The description of the best possible combinations of two goods to produce using all of the available resources. Shows the trade-off between more of one good in terms of the other.

11. 11 Production Possibilities Frontier ABCDEFG units of potatoes 6543210 units of apples 0123456 Production Possibilities Frontier

12. 12 units of potatoes units of apples ABCDEFG units of potatoes 6543210 units of apples 0123456 654321654321 1 2 3 4 5 6 A B C D E F G Production Possibilities Frontier

13. 13 units of potatoes units of apples 654321654321 1 2 3 4 5 6 A B C D E F G Constant Cost One unit of apples costs one unit of potatoes. One unit of potatoes costs one unit of apples. Production Possibilities Frontier

14. 14 units of potatoes units of apples 12 10 8 6 4 2 1 2 3 4 5 6 A B C D E F G Constant Cost What if? One unit of apples costs two units of potatoes? One unit of potatoes costs one-half unit of apples. Production Possibilities Frontier

15. 15 units of potatoes units of apples 654321654321 1 2 3 4 5 6 A B C D E F G I Production Possibilities Frontier

16. 16 units of potatoes units of apples 654321654321 1 2 3 4 5 6 A B C D E F G I Can this society produce at production combination H? H Production Possibilities Frontier

17. 17 Events that can expand production possibilities outward… A technological advance rail cars refrigeration computers An increase in human or natural resources population increase new discoveries Capital investment new factories new infrastructure Production Possibilities Frontier

18. 18 units of capital goods units of consumer goods 6 5 4 3 2 1 1 2 3 4 5 6 A B C D E F G Production Possibilities Frontier One unit of capital goods costs one unit of consumer goods. One unit of consumer goods costs one unit of capital goods. Production Possibilities Frontier

19. 19 Is knowing something about Economics valuable in your daily life? Do you make decisions daily?

20. 20 Microeconomics focuses on the individual parts of the economy How households and firms make decisions and how they interact in specific market settings. Macroeconomics looks at the economy as a whole. Economy-wide phenomena, including inflation, unemployment, and economic growth. Microeconomics and Macroeconomics