THE ECONOMIC WAY OF THINKING
According to John Maynard Keynes The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.
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. People gain from voluntary trade. Economic thinking is marginal thinking. The price of a good or service is affected by people’s choices. Economic actions create secondary effects. The test of a theory is its ability to predict.
A Test Of Economic Reasoning The best things in life are free?
True or False???? Anything worth doing is worth doing right.
A Tough One…. Life is priceless
A Fair Trade? The purpose of economic activity is to improve the well-being of some people at the expense of others.
Mystery and Intrigue? Economic theory is not very useful because human behavior is not predictable.
The Decision Tree model Your parents have given you a choice for your birthday party. You and your friends can either rent videos and games and stay home with pizza or you can go to a paint ball place.
The Decision Tree TIME HOME PAINT BALL TYPICAL EVERYONE COMFORTABLE MORE FRIENDS EXPENSIVE DANGEROUS UNUSUAL EXCITING
TIME HOME PAINT BALL TYPICAL EVERYONE COMFORTABLE MORE FRIENDS EXPENSIVE DANGEROUS UNUSUAL EXCITING PAINT BALL
The Decision Tree TIME HOME PAINT BALL TYPICAL EVERYONE COMFORTABLE MORE FRIENDS EXPENSIVE DANGEROUS UNUSUAL EXCITING PAINT BALL OPPORTUNITY COST
The Decision Grid criteria alternatives A USEFUL TECHNIQUE
The Problem A typical family of four is vacationing at the Jersey shore. They have set aside one day for fun and adventure on the open seas. They can rent jet skis, wind surf boards or sailboats. Anthony, the 13 year old, wants to drive something fast through the water but Angela, the fifth grader, has heard a lot about jet skis polluting the water. Mom is concerned about safety and she also wants to do something together as this is family time. Dad is a little concerned about money as all their other activities have cost more than he had planned. WHAT SHOULD THEY DO?
The Decision Grid criteria alternatives adventure together ness safety low cost no pollution Jet skis Wind surf boards sailboats beach
The Decision Grid criteria alternatives adventure together ness safety low cost no pollution Jet skis Wind surf boards sailboats beach OPPORTUNITY COST
The Handy Dandy Guide People choose. All choices involve cost. People respond to incentives in predictable ways. Economic systems influence individual choices and incentives. Voluntary trade creates wealth. The consequences of choices lie in the future.