1. Economic Decision Making

2. What is Economics? Definitions of Economics:
Economics is the study of how people seek to satisfy their needs & wants by making choices, (Study of Scarcity)
A social science (like history, geography, political science)
Studies, analyzes, predicts and explains economic activity

3. Handy Dandy Guide to Economics
People choose
Choice involves cost
People respond to incentives – which can be predicted
People create economic systems that influence choices and incentives
People gain when they voluntarily trade
Choices have consequences

4. Review Scarcity, Needs, and Wants
What is Scarcity?
Scarcity is the limited quantities of resources to meet unlimited wants
Examples: Drinkable water, oil, money, etc.
What is a need?
Something that is necessary for survival
Examples: air, water, food, shelter, etc.
What is a want?
An item that we desire that is not essential to survival.
Examples: car, phone, internet, MP3 players, etc.
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5. Scarcity of What? Capital Land Labor Entrepreneurship
The Fundamental Problem All Economies Face is Scarcity
Scarcity of What?
Capital
Land
Labor
Entrepreneurship
These are known as:
FOPs (Factors of Production)

6. Diamonds VS. Water Theory
Basic Concepts...
TINSTAAFL
There Is No Such Thing As A Free Lunch
Even when a g/s appears to be “free”, there is always a cost involved (labor and wages, RM used to make the g/s, someone else paid along the way)
Ex: “Buy One Get One Free” – you are paying for the first one, but the price had been increased so that profit is still being made on the second; AND somebody somewhere got paid to make that second good…so it’s not “free”
Paradox of Value
Diamonds VS. Water Theory
Diamonds are rare, limited, and a WANT…..expensive
Water is abundant and a NEED….more affordable
Thus, when something is SCARCE, it creates value (regardless of need or want)
When something is not scarce, it’s cheap.

7. Trade-Offs & Opportunity Costs
What types of things in your daily life do you have to make decisions about where you choose one choice of action over another?

8. Thinking at the Margin
From an economist’s point of view, when you decide how much more or less to do, you are thinking at the margin.
What would you choose?

9. Trade-Offs
Trade-offs are all the alternatives that we give up whenever we choose one course of action over another.
Example:
If you join the soccer team you give up the following after school: watching TV after school, getting a part-time job, hanging out with friends, etc.

10. Opportunity Cost
The most desirable alternative given up as a result of a decision
Example:
Nations often chose to build up their military (they produce more guns), they give up producing more food and other resources in turn (butter), “Guns or Butter”
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11. Review: Thinking at the Margin
When you decide how much more or less to do, you are thinking at the margin.
Options
1st hour of extra study time
2nd hour of extra study time
3rd hour of extra study time
Benefit
Grade of C on test
Grade of B on test
Grade of B+ on test
Opportunity Cost
1 hour of sleep
2 hours of sleep
3 hours of sleep

12. Activity: Economic Decision Making