DO NOW Get handouts from the table. Turn in Expectations (Last day to get 100%) 3. Anticipation Guide—BEFORE the Lesson Look at each of the 7 principles of economics Complete ONLY “Your Definition” column! Use your prior knowledge of the term, concept, etc. to hypothesize a definition for each in your own words

The 7 Principles of Economic Thinking

The 7 Principles of Economic Thinking Scarcity Forces Trade-offs Cost vs. Benefits Thinking At the Margin People Respond to Incentives Trade Makes People Better Off Markets Coordinate to Trade Future Consequences Count

Scarcity Forces Tradeoffs PRINCIPLE #1 Scarcity Forces Tradeoffs The inability to satisfy all wants at the same time; the NEEDS are greater than the RESOURCES SCARCITY People have Unlimited Wants… … but Resources are Limited Food Clothing Shelter Schools Hospitals Cars Transportation Land Soil Minerals Fuels People Money Technology

Scarcity Forces Tradeoffs SCARCITY forces us to choose which needs and wants to satisfy with available resources. There is no such thing as a “free lunch.”

Scarcity Forces Tradeoffs In other words, a TRADEOFF is your choice to play a sport, knowing you are giving up free time. Time is a limited resource (even if you are a billionaire, you still only have 24 hours in a day!) By choosing to spend 4 hours at practice, you are giving up the 4 hours you would have spent sleeping, watching TV, or studying (yeah, right!) if you didn’t play sports.

ROAD TRIP! You and a friend have decided to take a road trip to follow your favorite band on tour. Will you buy a large, comfy sedan with low gas mileage OR Will you buy a small car with great gas mileage? What are the tradeoffs associated with your choice? Trade roominess for good gas mileage OR Trade good gas mileage for nicer car

PRINCIPLE #2 Costs vs. Benefits Economists assume that choices are made based on expected costs and benefits

COST-BENEFITS ANALYSIS Costs vs. Benefits Every choice has a COST. Think About It… When you chose to come to school, what was your cost? And if you had chosen to stay home and sleep…? When people weigh the costs (money, time, effort, energy, some other sacrifice) against the perceived gain (money, time, experience, other improvement), this is known as a COST-BENEFITS ANALYSIS

COST-BENEFITS ANALYSIS ? Costs vs. Benefits What’s Jerry’s COST-BENEFITS ANALYSIS ? http://yadayadayadaecon.com/clip/7/

ROAD TRIP! Cost of hotel room is more than campground Each evening you have to make a choice – Pitch a tent at an inexpensive campground OR Pay more for a motel room with a soft bed, a shower, and no mosquitos Cost of hotel room is more than campground Are the Benefits of the hotel room worth the extra cost?

PRINCIPLE #3 Thinking at the Margin “Thinking at the Margin” = What is the benefit of adding ONE more? T-shirts on sale for $10 each – at a certain point adding ONE more t-shirt is not worth it anymore. Hulu @ $7.99 w/ads, or Hulu Plus @ $9.99 w/OUT ads?

Thinking at the Margin Stop @ 1:15 http://www.youtube.com/watch?v=Ml8_IQ3Cnrs

ROAD TRIP! Your road trip was planned for a six city tour. But then the band announces ONE MORE concert! This added concert is NOT in your plans, but you would really hate to miss it! This is a decision you must make at the MARGIN. Is the marginal benefit of attending the seventh concert worth the added costs in time & money?

People Respond to Incentives PRINCIPLE #4 People Respond to Incentives Incentives – anything used to change peoples’ behavior. POSITIVE INCENTIVES NEGATIVE INCENTIVES Motivate behavior Examples? Discourage behavior Examples?

People Respond to Incentives Incentives Video: https://www.youtube.com/watch?v=Mf2KV1kiVFY&index=5&list=PLAC4588289DAE0883

ROAD TRIP! One morning on your road trip you were pulled over by police for going 65 miles in a 50-mile-per-hour zone. Uh-oh! It was also a construction zone, so your fine will be doubled. Your decision to ignore the speed limit signs will cost you a $300 fine. You decide the $300 fine is enough incentive for you to watch your speed from now on.

Trade Makes People Better Off PRINCIPLE #5 Trade Makes People Better Off Trade is VOLUNTARY. Only trade if believe it is in best interest. Chik-fil-A wants your money, you want their food – trade helps you both.

Trade Makes People Better Off

ROAD TRIP! One morning, you turn the key in your car…nothing happens. Neither you nor your friend is a mechanic, so you push the car to the nearest gas station and look for help The mechanic on duty figures out you have a dead battery. You offer to trade your two tickets for that night’s concert for a new battery. You are disappointed about missing the concert, but everyone agrees that trading the battery for the tickets makes you all better off than you were that morning.

Markets Coordinate to Trade PRINCIPLE #6 Markets Coordinate to Trade Parties that trade want to make it as simple as possible. Examples: Many stores in one location at a mall Many brands of food sold in the same grocery store. Amazon, Ebay, let you get ANYTHING in one place (@ 2AM in your PJ’s…)

Markets Coordinate to Trade

MARKETS COORDINATE TRADE WITH REMARKABLE EFFICIENCY ROAD TRIP! On your road trip, you visit a grocery store. As you push your cart through the aisles, you see fresh mangos from Mexico, bananas from Belize, shrimp from Thailand, cheese from France, and salmon from Alaska. You wonder how a grocery store manages to stock its shelves wit so many fresh foods from around the world at prices you are willing to pay. It’s because… MARKETS COORDINATE TRADE WITH REMARKABLE EFFICIENCY

Future Consequences Count PRINCIPLE #7 Future Consequences Count Economists always think about the future “If we raise taxes, what will be the effect?” “Law of Unintended Consequences” – if we don’t think through all possibilities, we may be surprised by the result.

Future Consequences Count PRINCIPLE #7 Future Consequences Count Future Consequences Count video: https://www.youtube.com/watch?v=lRcFYZLrWwU

ROAD TRIP! Your road trip had a variety of consequences – some intended, others not. Short term – find out what it’s like to be on our own, away from family; learn how to deal with difficult situations Unintended consequences – your insurance bill months later shows that your insurance costs have gone up because you chose to ignore a speed limit sign!

Anticipation Guide —After the Lesson Review your notes on each of the 7 Principles of Economics. Complete the “New Paraphrase Definition” AND “Example” columns!

The Late Parent Problem Read the article With a shoulder partner, complete the Depth & Complexity (half sheet). Turn it in to the tray.

Tonight’s Homework Look through reliable news sources… online or print (what’s that ?!?). Find an article that illustrates at least ONE of the 7 principles of economics. Print it, write a short statement identifying the principle(s) it highlights and a brief explanation justifying it.