Unit 1: Introduction to Economics Clinton Burch
What you’ll learn What is economics? What is “the market”?
◦ How can it improve our lives? ◦ What are its characteristics?
What is “utility”? ◦ How is it different than “happiness”?
What are “incentives”? ◦ How can we use incentives to affect behavior? ◦ Why is it so hard to get incentives right?
Monday, August 4, 2014 Roster, hand out textbooks Bellwork
◦ How it works
Syllabus What is economics?
◦ Ch 1 Sec 1 ◦ 1.1 Critical Thinking Q’s due Tuesday
Bellwork
8.4.2014
If your joints hurt, get a dog… During the 2000 Presidential race, Al Gore told a group that his mother and his dog were taking exactly the same arthritis medicine but his mother paid almost three times as much for her prescription. (Al’s mom and dog actually weren’t taking the drugs, but he wasn’t lying about the prices.)
Think like an economist and tell me how this can possibly be true.
Getting to know you…
Who feeds New York City?
Review of 1.1 HW 7. Not enough teachers – is it scarcity? 8. Entrepreneurs 9. Scarcity in a 10-minute period
10. Regrets about misspent, scarce resources
Some basic vocabulary
Wants ◦ Desires that you want to satisfy
Needs ◦ Things required for survival
Scarcity Resources that are always in short supply ◦ Try and name some things that aren’t scarce
Shortage Supply of a good or service is temporarily low
Goods ◦ Physical items you can acquire
Services ◦ Work that is done for you by someone else
Consumer ◦ A person who acquires good and services
Producer ◦ A person who makes/provides goods and services
Bellwork
8.5.2014
Keep a bellwork paper for the week. I will collect and grade on Friday. One paragraph each. Think like an economist and tell me what’s wrong with this picture:
Due this week: - Read textbook pgs. 12-16, Critical Thinking Q’s due Wed. - Read “Naked” Ch 2 for Friday, quiz Friday
What is economics?
“the study of how individuals and societies satisfy their unlimited wants with limited resources” (textbook)
“the study of how people get the most out of their lives” (my definition)
“The Market” The “market” is a term that loosely describes the part of our lives that deals with trading, buying, and selling. The market is not a place, it is a part of our lives. AKA
◦ the “free-enterprise system” ◦ the “free market”
What is “the market” like?
The Market is a good tool for improving our lives.
Producers make a profit by providing goods and services that we want to buy! ◦ Hypodermic needles
◦ Why more cancer deaths are a GOOD thing…
The market is amoral. Not immoral, just amoral. The market provides things we want to buy, not necessarily what we need.
◦ Movie stars will pay tens of thousands of dollars for breast enhancement while children in Asia and Africa die of diarrhea (treatable with medicine that costs pennies per dose) ◦ A friends golfing expenses this summer: ~$1200 Cost of educating 40 rural children in India for a full year: ~$1200
◦ New “teaching shoes”: $60 Monthly wage of a 72-hour-per-week garment worker in Bangladesh: $60
◦ Drugs, prostitution, hired killers, etcetera
Changes in markets will benefits some and hurt others
Let’s look at the marriage market ◦ Traditionally, marriage gave men a legally binding way to pass property to offspring, while women married for financial stability.
The change...
◦ In 2014, women are making more money than ever before, and are (in the U.S.) better-educated than men, on average.
The result. ◦ This has changed the balance of power in the marriage market: Women are dating more, working more, and marrying later. Women are having fewer children. Women are marrying men closer to their own age, or even younger men. Women are expecting men to pull their weight around the house. Highly-educated women are even having trouble finding highly-educated men… often they have to “marry down”. “Stay-at-home” dads are becoming more common.
Try this one yourselves:
Let’s say that the government decides to regulate airline ticket prices; now all airlines are charging the same prices for similar flights. How will airlines compete for business?
Bellwork
8.6.2014
Use the concepts you read about last night to tell me what’s wrong with this picture. Remember, write a full paragraph!
Turn in 1.2 Q’s to tray!
Utility
Every decision we make, theoretically, should maximize our utility. ◦ Utility is like happiness, but broader. Utility is doing “what’s best” for yourself, even if your definition of “what’s best” doesn’t match everyone else’s.
Utility doesn’t always mean happiness. ◦ Perhaps you choose to watch a sad movie – it doesn’t make you happy, but you increased your utility. ◦ Parents often deny themselves luxuries to provide for their children – it maximizes their utility. ◦ People addicted to drugs might have the strength to quit, but not the interest – it maximizes their utility. ◦ Terrorists might be willing to die in a suicide bombing – it maximizes their utility.
Talk to your neighbor Agree on one activity that increases your utility and makes you happy. Agree on another activity that increases your utility but does not make you happy.
Be prepared to share your answers with the class.
Activities that increase your utility
Some also make you happy…
…and some don’t.
“Economizing” “making decisions that you believe are the best combination of costs and benefits” We try to get the maximum amount of utility for the minimum amount of cost We do this thousands of times a day:
◦ Choosing clothes, food, activities, friends, lovers ◦ Spending money and time
Are humans generally good at economizing?
Science says we’re ……….mostly bad at economizing.
Humans are good at economizing in certain areas but not others GOOD
◦ Basic functions of living beings Reproduction (which makes sense) Eating (gaining weight is a good strategy for survival) Satisfying our emotional needs (women AND men)
BAD ◦ Nearly everything else Money (we don’t save) Time (we procrastinate) Assessing our own skills and the skills of others (we think we’re awesome and everyone else sucks) Understanding risk (Absolutely no clue about risks) Looking cool on a motorcycle (that guy’s doing it RIGHT!)
Marginal Utility How much you benefit by doing something more than once. Think of it as a fraction:
HIGH benefit / LOW cost =
LOW benefit / HIGH cost =
GOOD!
BAD!
Example: A movie in theaters: You see “The Purge” in theaters and it costs $12. Is it worth it to see it again for $12? For most people, the answer would be “no” – you already know what happens.You might see it again for $3, but not $11. In this case, the Cost/Benefit ratio is HIGH – lots of cost for little benefit.
Another example: You go on a date with someone you are interested in…..romantically. You split the bill for dinner and after an exciting evening at the miniature golf course, you’re out $40. Will you go on another date? For most people, the answer will be “yes”. The benefit of a second date is well worth the cost…THIS COULD BE MR. OR MRS. RIGHT! In this case the Benefit/Cost ratio is HIGH – lots of benefit for little cost.
Now you try… Find a partner. Figure out something that you BOTH agree has a HIGH marginal benefit (high benefit, low cost the second time around), and explain it in those terms. Agree on something that has a LOW marginal benefit. Be prepared to share with the class.
High and Low Marginal Utility High Marginal Utility
Low Marginal Utility
Bellwork
8.7.14
Think like an economist and tell me what’s wrong with this picture…
Concept to use: Opportunity cost
Incentives If you give people a reason to do something (or not do something), many of the will (or will not) Positive incentives
◦ Incentives that will benefit the person ◦ Used to encourage certain behavior
Negative incentives ◦ Incentives that will hurt the person ◦ Used to discourage certain behavior
Bellwork
8.8.14
When boxing gloves were first used they were hailed as a safe and civil alternative to bare fists. However, studies have shown that matches with boxing gloves cause more brain damage than bare-fisted matches. Why?
Laws that backfire…
Why did the Endangered Species Act actually kill more endangered species? How did smoking bans in bars cause more drunk driving deaths? How did limits imposed on the places that sex offenders could live actually make them harder to track? Why does the Americans with Disabilities Act actually cause more people with disabilities to be unemployed? Why do fishing quotas actually cause there to be fewer fish?
Naked Economics
Black rhino
Teacher’s pay
Naked Ch. 2 Pollution in Mexico City
Stock Options for CEOs
Naked Ch 2
Real Estate Agents
“Creative destruction”
Taxes ◦ Economists generally prefer taxing consumption, not income ◦ The wealthy will go to great lengths to evade taxes
