Download Decisions, Decisions

Why do we make decisions???
Scarcity
 A situation where there aren’t enough resources to
meet wants
Scarcity affects what goods (things that can be purchased) or
services (a person that works for another) can be provided.
Economics studies how people
choose to use scare resources to
satisfy their wants.

How have you been impacted by the
problem of scarcity? Describe a situation
or personal experience.
Microeconomics
The study of economic behavior and
decision-making by smaller units of the
economy (such as individual households
and business firms.)

› Examines how decisions affect pricing and
the supply and demand of goods and services.

The study of the behavior of the
economy as a whole
› Can be an overview of the regional,
national, or global economy
› Used by governments and industries to
 predict trends
 identify economic growth
 help define social issues related to economic
circumstances.
› Ex. Unemployment trends, inflation (general
rise in prices)
Micro
1. Opportunity Cost &
Production Possibility
Curves
2. Supply and Demand
3. Market Structures
 Monopolies, corporations, etc
4. Role of Government
 Taxation and Gov’t spending
to correct market failures
Macro
5. Gross Domestic
Product, Inflation,
Unemployment,
Poverty
6. Money, stocks & bonds
7. Fiscal and Monetary
Policy
8. Trade and
Comparative
Advantage

If you are analyzing the average
national income of Americans, are you
studying microeconomics or
macroeconomics?

Three factors determine someone’s
decision to do or buy something
› Positive incentives (benefits/ rewards)
 Cleaning your room  go to a movie
 Creating a savings account  earn interest on your
money
› Negative incentives (costs/ penalties)
 No homework  get a bad grade
 Miss work  Lose my job
› Utility (usefulness)
 How often will I wear this
shirt if I buy it?

People try to make the best decision or
economize
› Economize means to make decisions
according to what you believe is the best
combination of costs and benefits

“There is no such thing as a free lunch.”
› This old saying sums up the issue of choice in
economics.
› There is always a cost for something even if it
is “free”
 Ex: I went to a concert for “free”.
 I gave a unit of blood at the red cross to get a ticket
 Ex: I got a popcorn at the movies for “free”
 I had to buy overpriced candy and soda to get the
popcorn

Tradeoff-the alternative people give up when
they make choices
 Ex: If you are going for a night out with your friends
 A: Go to the movies
 B: Go to dinner
 If you take B (dinner) the tradeoff is A (movie), or vice versa.

Opportunity cost- the value of something that is
given up to get something else that is wanted.
 If you select B, the opportunity cost is seeing your
favorite actor
 If you select A, the opportunity cost is the nourishment
of the meal you gave up
Frank is faced with a decision. He can either buy a $60
textbook or a new video game for $50. Frank really wants
the video game, but he needs the textbook to study.
What should he do?
Option A- He buys the textbook
A.
›
›
›
What is his tradeoff?
What is the opportunity cost?
How did utility impact his decision to buy the textbook?
Option B- He buys the video game
B.
›
›
›
What is his tradeoff?
What is the opportunity cost?
How did utility impact his decision to buy the video game?