Economics

Economic Reasoning: Why are We A Nation of Couch Potatoes? Welcome to the exciting world of economics! Definition: The social science that deals with how society allocates scarce resources among its unlimited wants and needs by examining alternatives and considering the opportunity costs for each alternative Economic reasoning can be used to explain a wide range of human behavior.

Why are We A Nation of Couch Potatoes? Which well known people do Americans tend to admire? How are Americans’ exercise and diet habits changing?

Why are We A Nation of Couch Potatoes? On the one hand, Americans admire people who look slender and physically fit.

Why are We A Nation of Couch Potatoes? On the other hand, according to the Center of Disease Control and Prevention ~25% of Americans are getting enough exercise ~35% are overweight Percentage of children who are overweight has doubled since the early 1970s

Why are We A Nation of Couch Potatoes? Economic Mystery: Why do an increasing number of Americans, the same people who admire the trim, slender look so often featured in the media, exercise too little and eat too much?

True or False? Few Americans know that exercising more and eating less can help many people become healthier. Exercise and a healthful diet are free. In jobs that involve physical work, exercise is like a fringe benefit. The price of food has been increasing. Passive modes of entertainment like-TV and video games-are popular. Common jobs in the past-in mining, farming, and manufacturing-were much safer than today’s jobs in technology, law and finance.

Solve the Mystery! Read Activity 1 and answer the questions on a separate sheet of paper (10 minutes).

Guide to Economic Reasoning People choose. People’s choices involve costs. People respond to incentives in predictable ways. People create economic systems that influence economic choices and incentives People gain when they trade voluntarily. People’s choices have consequences that lie in the future.

Applying Economic Reasoning to Couch Potatoes! What are some of the costs associated with failure to exercise enough and being overweight? What incentives might influence people to exercise less and eat more? How might you solve the mystery? What are some ways to change the incentives associated with exercise and diet?’

Applying Economic Reasoning to Couch Potatoes! Periods 1,3,4 Homework: Read the following articles and come prepared to discuss them. Please also print them out. “Watering the Food Desert” and “Not Too Rich or Too Thin” posted on my website. Period 2: Read the following articles and come prepared to discuss them. Please also print them out." Disparities in Obesity Prevalence Due to Variation in the Retail Food Environment” and “Self Regulation and the Response to Concerns About Food and Beverage Marketing to Children in the United States” posted on my website.

Article Tasks Step 1 Please read and code your assigned article. Put an * by any material you think is a main idea. Put an ! by any material you think is surprising or interesting. Put a ? by any material you do not understand/have questions about.

Article Tasks Step 2 Get in groups of 4 people with the same article and answer the questions about your article.

Article Tasks Step 3 Find a partner who did not read the same article as you and do the following: Summarize the article for your partner. Identify and explain at least one item from each coding category (*,!, ?) Explain how your article relates to the Couch Potato lesson (Does it contradict or support the lesson? How and why?)

Key Idea #1: Scarcity Chief economic problem—faced in all societies Condition of having to choose among alternatives Idea of limited resources and unlimited wants and needs Scarce good versus free good

Key Idea #2: Choice Scarcity leads us to choose between alternatives Choices are on an individual (micro) and societal (macro) level Three economic questions What should be produced? How should goods and services be produced? For whom should goods and services be produced?

Review: 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.

Key Idea #3: Opportunity Cost Definition: the value of the best alternative forgone when making any choice Most important concept in economics TINSTAAFL

Opportunity Cost: 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.

SCARCITY CHOICE How Do You Know When Scarcity Forces You to CHOOSE Something Is Scarce? Scarcity Forces You to CHOOSE SCARCITY CHOICE

Opportunity Cost: the foregone alternative Think: “next-best”

Scarcity IS: Even in the face of abundance . . . What’s scarce when you’re in the Mall of America? at the all-you-can-eat buffet?

Opportunity Cost = the Next-Best Alternative Identifying Opportunity Cost: What are the considered alternatives? Prioritize the alternatives – What is the best and what is the “next-best”? What would you do – not what could you do? What does the decision-maker perceive to be the benefits of each alternative?

People’s Choices are always RATIONAL Rational choice = choosing the alternative that has the greatest excess of benefits over costs. If ALL choices are rational, then the challenge is to understand the decision-maker’s perception of costs and benefits.

Opportunity Cost Analysis What was the 1st decision you made this morning?

Opportunity Cost Analysis What was the 1st decision you made this morning?

Opportunity Cost Analysis Decision Maker: YOU Alternatives: Get Up Now Don’t Get Up Now Perceived Benefits Choice Opp. Cost Benefits Refused

Opportunity Cost Analysis Decision Maker: YOU Alternatives: Get Up Now Don’t Get Up Now Perceived Benefits Shower bkfst don’t rush On time coffee Choice Opp. Cost Benefits Refused More sleep

Opportunity Cost Analysis Decision Maker: YOU Alternatives: Get Up Now Don’t Get Up Now Perceived Benefits Shower bkfst don’t rush On time coffee Choice X Opp. Cost Benefits Refused More sleep X

Opportunity Cost Analysis Decision Maker: YOU Alternatives: Get Up Now Don’t Get Up Now Perceived Benefits Shower bkfst Coffee don’t rush On time Choice X Opp. Cost Benefits Refused More sleep

Use the concept of opportunity cost to discuss the following questions: Who might choose to get bumped from a flight? Should Tiger Woods mow his own lawn? What is the cost of attending college? for LeBron James? for you?

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. Incentives may be positive or negative. Incentives may be monetary or non-monetary.

Why study economics? Affects daily lives Helps us to make informed decisions Helps us become more effective citizens

The Economic Way of Thinking: What differentiates economics from other social sciences? Economists emphasize the role of opportunity costs in analyzing choice Opportunity cost versus opportunity benefit (what is gained by making a particular choice) Expected benefits of alternatives will affect choices As set of alternatives change, choices change

The Economic Way of Thinking: What differentiates economics from other social sciences? Motivation for choices is to maximize value of some objective/and objectives defined by self interest Business owners motivation is to maximize profit Consumers make choices to maximize satisfaction (utility) Self interest doesn’t necessarily mean that people are greedy/selfish

The Economic Way of Thinking: What differentiates economics from other social sciences? Motivation for choices is to maximize value of some objective/and objectives defined by self interest Economists study all sorts of choices: how people choose life partners, voting, drug use etc. Decision making matrix Define problem List the alternatives List the criteria used to evaluate your alternatives Evaluate the alternatives Choose the best alternative

The Economic Way of Thinking: What differentiates economics from other social sciences? Individuals maximize choices by using marginal decision making Margin—current level of activity Marginal decision making– deciding to do a little more or a little less of something

Microeconomics/Macroeconomics Microeconomics branch of economics that examines the choices and interaction of individuals concerning one product, firm, or one industry (how individual producers and consumers respond to changes in market) Macroeconomics the branch of economics that examines the behavior of the whole economy at once unit of analysis not individual but economy as a whole

Micro or macro? You decide Comparing unemployment rates of Germany and the United States How the price of milk is determined The impact of preservation of wilderness areas on the logging industry and on the price of lumber Increases in US consumer demand

Importance of Economic Theory Theory: simplified description of reality Why is theory important even if it is sometimes incorrect or can’t predict outcomes 100% of the time? Model: simplified form of reality which shows the relationship between different factors Economic theory simplifies reality

Ceteris Paribus Assumption All other things unchanged Assumption that only one variable changes at a time Economists do this because they want to get a general sense of the direction of relationships

Normative versus Positive Statements Normative- a statement that makes a value judgment Positive-a statement of fact or a hypothesis

Normative or Positive? You decide! Ms. Hartsfield is shorter than most students at SMCHS. Ms. Hartsfield has two of the cutest babies ever! Ms. Hartsfield has two children. Ebenezer is a cloth snowman.

Chapter 1 Appendix 1 What is a graph? What does it illustrate? Origin of graph Slope Independent variable-variable that induces the change (usually x [horizontal] axis) Dependent variable-variable that responds to the change (usually y [vertical] axis)

Chapter 1 Appendix 1 Positive slope/direct relationship Negative slope/indirect relationship

Movement along versus movement of the curve Along: change from one point on the curve to another that occurs when the dependent variable changes in response to the independent variable Change in quantity supplied or demanded Of: new values of variable at each value of the other variable Change in supply or demand