Economic Trilogy Sara Shackett AP Microeconomics Economic Trilogy Sara Shackett

Task Put everything away 5 groups Need access to pencil, paper, eraser, sharpener, Student Handout 8 minutes! Task

Cave-o-nomics

Marketplace Goods Services Trade Free Market System Innovation Competition Supply and Demand

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A little housekeeping… My website Your textbook, homework Class ninja

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The Economic Trilogy Scarcity Choice Cost

SCARCITY Scarcity Scarcity- limited amounts of goods/services to meet unlimited wants Must be limited AND desirable Two or more alternative uses Someone would pay Rare – distinctive and unusual Difference- There must be a demand for a rare item to make it scarce

Scarce or Not Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? Old economics textbooks collected in a bookcase near the teacher’s desk with a sign that says, “Free books—take as many as you want.” The books have been there for three years. Old economics textbooks collected in a bookcase near the teacher’s desk with a sign that says, “Free books—take as many as you want.” Another sign posted in the hallway says, “$10 paid for any recycled textbook. Bring books to the Principal’s office.”

Scarce or Not Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? One economics textbook, five students who wish to do well in the economics course, and an important test in the economics class the next day. One economics textbook, five students who are not taking economics, and an important test in the economics class the next day.

Scarce or Not Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? Petroleum in Japan, a country without its own oil fields and without oil reserves. Petroleum in Saudi Arabia, a country with many oil fields and oil reserves.

It’s Treated as Not Scarce… But is it Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? Water fountains in Rome flow continuously with water carried by viaducts from the Italian mountains. People walking in Rome quench their thirst by drinking from the fountains. But most of the water flows into the street and down the drains to a river that passes through the city.

It’s Treated as Not Scarce… But is it Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? At closing time, restaurants in the US are required to throw away all uneaten food. To meet health standards for food preparation and the safety of consumers, the food cannot be stored for use the next day. Also, the law prohibits restaurant employees from giving the food to the poor or dispersing it to the local food banks.

It’s Treated as Not Scarce… But is it Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? Pebbles are taken from a beach to build a walkway in a homeowner’s lawn. No one else wants the pebbles. The pebbles are not necessary for the lake’s ecosystem or animal habitat.

It’s Treated as Not Scarce… But is it Scarce? Is it desirable? 2+ uses? Is it limited? Would someone pay for it? A farmer has a water irrigation contract that requires the water user to use the entire allocation of water to water crops, whether or not all the water is needed for crop irrigation. If the farmer does not use all the water, he or she will receive a smaller allocation next year.

Choice Discuss how INCENTIVES influence choices too! Economics is the study of choices. Choice

Cost Cost is a TRADE OFF. What you give up when you choose. You give something up every time you choose Explicit costs—out of pocket expenses Implicit costs—value of resources that could have been used elsewhere The next best alternative not chosen (given-up) is called: Opportunity Cost Opportunity Cost is the same as an opportunity lost When you choose, you refuse! Cost

Opportunity cost OC of watching TV on a weeknight is the benefit you could have gotten from studying economics. OC of going to college is the income you could have earned by getting a job out of high school. OC of starting your own business is the wages you give up by working for another company. OC of using forest resources to build houses is the enjoyment people get from having pristine forests.

You don’t have to spend a buck to have a cost… EXPLICIT cost of going to college? IMPLICIT cost of going to college? EXPLICIT cost of taking a job after school? IMPLICIT cost of taking a job after school?

The Economic Way of Thinking Everything has a cost. People choose for good reasons. Incentives matter. People create economic systems to influence choices and incentives. The Economic Way of Thinking

5. People gain from voluntary trade.

6. Economic thinking is marginal

7. The value of a good or service is affected by people’s choices.

8. Economic actions create secondary effects.

9. The test of a theory is its ability to predict correctly.