The Economic Way of Thinking

Micro vs. Macro  MICROeconomics – study of small economic units such as ind’ls, firms, industries  MACROeconomics – Study of the LARGE economy as a whole or in its basic subdivisions (national economic growth, unemployment, etc.)

What is Economics?  The science of scarcity - unlimited wants, limited resources  Scarcity forces us to make choices  Economists study how individuals and societies deal with scarcity

Would you see the movie three times?

Marginal Analysis  In economics, marginal = additional  “Thinking on the margin” or marginal analysis involves making decisions based on the additional benefit vs. the additional cost

List 3 things you don’t like to eat…

What if the alternative were dog poop?

Given the following assumptions, make a rational choice in your own self- interest (hold everything else constant): 1. You want to visit your friend for a week. 2. You work every weekday earning $100 per day 3. You have three flights to choose from: 1. Thursday Night Flight: $ Friday Early Morning Flight: $ Friday Night Flight: $325 Which flight do you choose and why?

Ceteris Paribus  All other things held constant

Trade-Offs  ALL decisions involve trade-offs: the alternatives we give up whenever we choose one course of action over others (There is no such thing as a free lunch!)  Opportunity cost: the most desirable alternative given up  Volunteer needed – must be dating someone.

Create a Pitch!  Convince your classmates to pick your item. Good luck!

 Which is more important to survival – diamonds or water? Which is more expensive and why? Explain in terms of scarcity.

 How much does a ticket cost for a regular season Phillies game? What about in 2008 when the Phillies made it to the World Series? In terms of scarcity, explain why the price increased.

Centerpiece Activity  Each person needs one notecard in addition to one notecard placed in the center of your group.  Label the first notecard with “ Cartoon Characters”  30 second “ think time ” – no writing or discussion!  Generate one idea at a time then trade your notecard with the one in the center.  Continue brainstorming items, each time trading your note card with the centerpiece.

Centerpiece Topic #2: BEST Class Ever!  Brainstorm features of the best class you’ve ever experienced.  What did the teacher do?  What did you and your fellow classmates do?

Centerpiece Topic #3: WORST Class Ever!   Brainstorm features of the worst class you’ve ever experienced.  What did the teacher do?  What did you and your fellow classmates do?

How is economics used?  Theoretical Economics – scientific method used to make generalizations & abstractions to develop theories  Policy Economics – theories applied to fix problems or meet economic goals  Positive vs. Normative :  Positive Statements – based on facts. Avoids value judgements (what is)  Normative Statements – includes value judgements (what out to be)

In Summary: Five Key Economic Assumptions 1. Society’s wants are unlimited, but ALL resources are limited ( scarcity ). 2. Due to scarcity, choices must be made. Every choice has a cost ( a trade-off ). 3. Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” 4. Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice 5. Real-life situations can be explained and analyzed through simplified models and graphs.