Economics for Leaders Don’t try to write down everything I say Lectures will be fast-paced with lots of information and lots of interaction Pay attention and get involved As the week ends, it will come together You can have all of these slides and materials Let’s Learn Some ECON

Economics for Leaders Each morning I will award a prize to one or two students who shined the day before If you want to win then you need to be alert, engaged and participate in a meaningful way Let’s have some FUN! Post-Test at the end of the week (80%)** Shining Students

At the end of the day, always remember… Joke of the Day

You can tune a piano, but… Joke of the Day

You can’t TUNA FISH! Joke of the Day

Economics for Leaders Human Prosperity and social cooperation develop spontaneously in societies that protect property rights and encourage voluntary trade/exchange. Developing an economic way of thinking empowers people to understand and explain the world in which we live. Hypotheses for the Week

Why are some countries rich and others poor?

Why do we care?

Economics for Leaders Opinions matter and are of equal value at the ballot box. But on matters of rational deliberation the value of an opinion is determined by the knowledge and evidence on which it is based. Statements of opinion should initiate the quest for economic understanding, not end it. Economic Reasoning Principle #5: Understanding based on knowledge and evidence imparts value to opinions.

Economics for Leaders The rules of the game shape how decisions are made. Decisions determine outcomes. People respond to incentives in predictable ways. The Rules of the Game Institutions & Norms

Economics for Leaders Something is scarce if society cannot have all it wants at no cost. By cost we mean OPPORTUNITY COST. Some things are more scarce than others. Relative scarcity is determined by what must be given up. Scarcity

Economics for Leaders Because the world is characterized by scarcity, we are forced to make choices. We must allocate scarce resources among competing uses. Wood that is used for tables and chairs cannot be used for crutches (or forest). Land that is kept undeveloped cannot be used to build housing for the poor. Time Choices

Economics for Leaders

Because we are forced to make choices (scarcity), we are faced with costs. The cost of any choice is what is given up. Choosing is REFUSING! Opportunity Cost

Economics for Leaders Choosing Between Alternatives

Economics for Leaders

Do You Want to Trade?

Economics for Leaders

Do You Want to Trade?

Economics for Leaders 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.

Economics for Leaders Economic Reasoning Principle # 2: 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. What did you give up to be here?

Economics for Leaders

choices → TRADE-OFFS → forgone alternatives OPPORTUNITY COST! choosing is REFUSING! the cost of something is what you give up. OPPORTUNITY COST!

Economics for Leaders Economic Reasoning Principle # 3: 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. People do what makes them better off. Marginal Benefit, Marginal Cost (MB > MC).

Economics for Leaders Choosing Between Alternatives

Economics for Leaders

Do You Want to Trade?

Economics for Leaders Do You Want to Trade?

Economics for Leaders The benefit (value) of the next one will eventually be lower. Diminishing marginal benefit (value). Value is based on benefit received. Rolos, Washing machines, automobiles, houses, vacations. A Fact Regarding Benefits

Which is more realistic? Production Possibilities Frontier (PPF): Graphical representation of the possible goods/services an economy can produce at a given time with the available resources and technology

Economics for Leaders The cost of the next one will eventually be higher. Rising marginal cost. Cost is based on what is given up. Wheat vs. Oranges, work, vacations, China and India growing economies A Fact Regarding Costs

Economics for Leaders Do it if…… MB > MC Choose Between Alternatives

Economics for Leaders Big Ideas choices → TRADE-OFFS → forgone alternatives OPPORTUNITY COST! choosing is REFUSING! the cost of something is what you give up. OPPORTUNITY COST!

Why can’t we have all we want?

Economics for Leaders Big Ideas People do things that make them better off. Diminishing marginal value (benefit). Rising marginal cost (opportunity cost). The rules of the game shape how decisions are made. Decisions determine outcomes.

Choosing Between Alternatives

Economics for Leaders "What is YOUR solution?“ "There are no solutions," I said. "There are only trade-offs.“ "The people DEMAND solutions!" she shot back angrily. The people can demand square circles if they want. But that doesn't mean that they will get them. Quote From Thomas Sowell Opportunity Cost!