Explorations in Economics Alan B. Krueger & David A. Anderson

Chapter 1: Exploring Economics Module 1: What Is Economics? Module 2: Production Possibilities for Nation Module 3: The World of Economics

WHY STUDY ECONOMICS? Make sense of the daily news Make good decisions about your time and money Lead a happier, more satisfying life SO… Economics provides a framework for understanding the world around you. Economics helps you evaluate messages from advertisers, the media, and people trying to take your money.

MODULE 1: What is Economics? KEY IDEA: Economics deals with the choices we make, individually and as a society, under conditions of scarcity. OBJECTIVES: To explain what economics is and why it is important. To define opportunity costs. To differentiate between wants and needs. To name society’s key economic resources. Think of choices we make in terms of occupations, where we shop, how we decide who has access to Great Lakes water as an example. Society and individuals have many choices and economics evaluates these choices.

SCARCITY AND YOU So… Scarcity Implies Tradeoffs Economics…the study of choice under conditions of scarcity. Scarcity…exists when we desire more of something than we can have. So… You make a tradeoff when you give up one thing to get something else. This means you make tradeoffs to overcome scarcity. Try to think of examples to give teacher that help students to understand scarcity and tradeoffs. Be practical and use their limited amount of money and the offerings in the cafeteria or the quick shop? If they want chips and a soda but do not have enough money, what are their choices?

Opportunity Cost The opportunity cost of a choice is the value of the next- best alternative given up when that choice is made. Think of the example of coming to school. The choice to cut class is an option but the opportunity cost is too high for most students.

Scarcity and Society Needs and Wants Needs are minimal requirements of things such as food, water, and shelter that are necessary for survival. Wants are things that are desired but are not essential to life. An economy coordinates the production and distribution of goods and services. Have students create a needs versus wants list. They will find most items are wants.

Scarcity and Society Goods and Services Goods are physical items produced in an economy, such as jeans, tennis rackets, popcorn, cars, and homes. Think of some goods that you are currently carrying. Services are activities produced in an economy, such as education, entertainment, and health care. Goods are items that we buy (demand) to satisfy a want.

Scarce Resources Resources are the basic elements from which all goods and services are produced. Land is anything drawn from nature for use in the production of goods or services. Labor is the time and effort people contribute to the production process. Explain students to think of the renting or buying of space to start and run a business. Additionally, ask students why the investment in labor in terms of training is important.

Scarce Resources Resources are the basic elements from which all goods and services are produced. Capital is anything long lasting that is created by humans for use in production. Entrepreneurship is the willingness of people to organize, operate, and assume the risks involved with business ventures. In addition to land and labor, capital is important for labor and land to be maximized. Ask the students what capital equipment they see in businesses as important. Ask students to come up with an idea for a business. Then follow up with: Is there demand for it? How much space (land) would you need to rent? How many workers (labor) would you hire? What type of equipment would you need (capital)?

Scarce Resources Figure 1.1: Resource Scarcity With limited resources and unlimited wants, society is forced to make tradeoffs. DID YOU GET IT? How does the scarcity of resources affect society’s ability to satisfy its wants? Figure 1.1 models the relationship between resource scarcity and unlimited wants and needs. The capacity to produce goods and services is limited by the scarcity of resources. Economics is the “science of efficiency” in dealing with the scarcity issue. We need to be wise about resource use to maximize our wants and needs.  

MODULE 1 REVIEW What is… A. Economics? B. Scarcity? J. Services? C. Tradeoff? D. Opportunity cost? E. Society? F. Needs? G. Wants? H. Economy? I. Goods? J. Services? K. Resources? L. Land? M. Labor? N. Capital? O. Physical capital? P. Human capital? Q. Entrepreneurship? R. Inputs? Have the students create a notebook with a section titled vocabulary. This will be helpful in the future. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

MODULE 2: Production Possibilities for a Nation KEY IDEA: A production possibilities frontier illustrates the tradeoffs society makes in its use of scarce resources. OBJECTIVES: To explain why economists use models. To present and interpret the production possibilities frontier model. To explain the law of increasing opportunity cost. To define the concepts of efficiency and growth. Be sure to review the ideas of scarcity and tradeoffs.

Economists use modeling to simplify reality. Economics Models Economists use modeling to simplify reality. Models help to focus on selected aspects of the real world by stripping away nonessential details. By leaving out some details, maps and other models make it easier to find what you’re looking for.

The Production Possibilities Frontier A production possibilities frontier, or PPF, is a curve that shows the maximum quantity of one good that can be produced for each possible quantity of another good produced. Have students explain the difference between point G and H. Then ask what the difference between C and D are on the curve.

Efficiency and Growth An economy is efficient if there is no opportunity to make someone better off without making anyone else worse off. Explain how a point change from A to B to C to D to E to F are all efficient and do not make people better off or worse off but show a choice society is making.

Opportunity Costs for Society Make sure the students understand that points on the curve represent efficiency.

Opportunity Costs for Society The law of increasing opportunity cost states that the opportunity cost of a good rises as more of the good is produced. Write on the board the X & Y values for points B, C, and D to show INCREASING opportunity costs.

Efficiency and Growth Economic growth is an increase in the ability to produce goods and services over time. PPF moves due to more resources, more training for labor, greater productivity, or even trade with other countries. The term is scarcity. We have limited resources to add to our capacity to produce.

MODULE 2 REVIEW What is… A. Model? B. Production possibilities frontier? C. Law of increasing opportunity cost? D. Efficient? E. Economic growth? F. Economic model? Have the students add these terms to their notebooks. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

MODULE 3: The World of Economics KEY IDEA: There are two types of economics that differ in regard to the topics economists study and the types of questions they ask. OBJECTIVES: To explain the difference between microeconomics and macroeconomics. To differentiate positive and normative economics. To identify terms that have special meanings in economics.

Microeconomics Macroeconomics The study of how people make decisions and how those decisions affect others In the economy. Microeconomics Example Topics: - Profits - Markets - Pollution The study of the economy as a whole. Macroeconomics Example Topics: - Inflation - Interest rates - Government spending These notes are from the teaching tip in the TE of the text. It would be good to repeat the analogy for reinforcement. The individual trees in a forest are the “players” in the economy—households, businesses, and the government. These players interact and produce a set of goods and services. If they excel, the forest thrives. The set of goods and service is the forest. We look at the forest as one entity. We study the effects of weather, fire, and other elements  that can influence the forest overall. Macroeconomics studies the economy as a whole, while microeconomics studies the participating players and how they interact.  

Wages and Economics A degree in economics can allow people to work in many places in both government and the private sector. Explain to students that problem-solving, analytical skills, and economic predictability are valued skills in the labor market. Here a link to the Bureau of Labor Statistics page http://www.bls.gov/ooh/Life-Physical-and-Social-Science/Economists.htm#tab-2

Positive Economics Normative Economics Positive economics is the study of what the world is like and why it works the way it does. It is about facts and cause- and- effect relationships. Positive questions include: • How many teenagers live in poverty? • Do people buy more or less Coke when their incomes increase? Normative economics is the study of the way things should be rather than the way things are. Normative economics brings opinions and ideals into the process of answering questions. Normative questions include: • Should our country do more to help the poor? • Should college athletes be paid to perform? Use the Activity Learning TE activity before or after this slide show to reinforce this concepts

The Language of Economics In economics, a market is not a place but a collection of buyers and sellers, wherever they may be. Markets coordinate prices through demand and supply. Markets help society understand the problem of scarcity. Explain the idea that words have new meanings in economics. Profit and Money are not the same.; interest rate has more than one defintion; capital means money and the tools of production.

MODULE 3 REVIEW What is… A. Microeconomics? B. Macroeconomics? C. Positive economics? D. Normative economics? E. Market? F. Capital? Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.