Economics  The word economy comes from a Greek word for “one who manages a household.”  Economics is the study of how society manages its scarce resources. Resources: Factors of Production  land  labor  kapital  entrepreneurship

Use Resources to Produce Goods & Services Use Resources to Produce Goods & Services Why can’t we have all we want?

Use Resources to Produce Goods & Services Use Resources to Produce Goods & Services  The management of society’s resources is important because….  Resources are SCARCE!  Resources are LIMITED!  Can’t have everything we want, desire (need)!  What to produce?  How to produce it?  Who gets it?

A Household / Economy Faces Many Decisions  Who will work?  What goods should be produced?  What resources should be used in production?  What prices should goods be sold for?  Import/Export?  Guns & Butter?

A Household / Economy Faces Many Decisions  How much health care…who should get it?  How much education…who should get it?  How much military…who should get it  How much transportation…who should get it?  How much green space…who should get it?  How much garbage…who should get it?  How much carbon…who should get it?

Choose Between Alternatives  choices → TRADE-OFFS → forgone alternatives → OPPORTUNITY COST –go to college or to work? –study or go out on a date? –go to class or sleep in? –mandate fleet average of 35 mpg for auto makers? –mandate 15% of energy come from renewable sources?  The OPPORTUNITY COST of an item is what you give up to obtain that item.

Choose Between Alternatives

There Is No Such Thing As A Free Lunch The Cost of Something is What is Given Up –free ticket to a Dave Matthews concert? –getting bumped from a flight –snow removal equipment? –universal health coverage? –the war on terror? –Kyoto, Copenhagen, Cancun, Rio, Doha? –if not here…..then where?  Choosing is Refusing!

Thinking On The Margin  incremental/minor adjustments –stay open another hour? –study one more hour for economics exam? –eat one more slice of pizza? –additional schooling? –save the rainforest (whales, baby seals, owls)? –cars, roads, alternative fuels, public transportation? –Canadian tar sands, Frac(k)ing? –DRILL BABY DRILL?  Choosing is Refusing!

Thinking On The Margin  In the news…..  Downsizing to a studio apartment in Minneapolis means Courtney Zintner’s living room is also her bedroom and her office, but she is saving more than $900 a month and has a shortened commute.

There is no such thing as a FREE LUNCH “What is YOUR solution?” “There are no solutions,” I said. “There are only trade-offs.” “The people DEMAND solutions!” she shot back angrily. I replied, “the people can demand square circles if they want. But that doesn't mean that they will get them.”  Quote by Thomas Sowell…..

Markets: Choices/Rationing Back to Scarcity: What’s the Question? And what does opportunity cost have to do with it? Should we ration? Given that we MUST ration, what is the best mechanism? Scarcity forces us to choose… CHOOSING is REFUSING!

Markets: Choices/Rationing Methods of Allocation  random (lottery)  age, beauty, height, skin color  first come – first serve  share equally  auction  prices (willingness to pay)  Markets!  Interaction and Trade (exchange)