Download 10 Key Elements of Economics

Scarcity, Choice, and
Economic Reasoning
What is Economics?
What is Economics?
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Economics is not all
about money, math,
and numbers!!!
Money is a tool
that allows people
to trade easier.
$ is not a resource.
You can’t produce
anything with it.
What is Economics?

Economics is the study of choice!!!
Economics is the study of how humans
choose to use scarce resources to achieve
personal and social goals.
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Goals – what do we want?
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This is a good time to talk to you about a
four-letter word:
Tell me what you
Needs Options
Applications
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Needs: Something for which there is no
alternative.
Wants: Something that people make a
choice to obtain depending upon the cost
or sacrifice.
Needs vs. Wants
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The concept “Needs” is not helpful when
trying to explain or anticipate human
behavior.
“Needs” suggest individuals have no choice
with regard to their behavior.
“Wants” suggest that individuals choose
among alternatives.
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Trade-Offs: alternative choices when
spending money, time, or resources
Needs only exist in the context of a Want
Assumption
 All
decisions are rational
People are not stupid, pathetic, or
sociopaths
 Yet, we often think they are when
they do something we don’t like

Is this person’s
decision rational?
http://www.humoroftheday.com/gallery/images/Pierced1.jpg
Is this person being rational?
Are these people being rational?
You don’t know until you know what rational
means! What is the definition of rational?
Rational-- One’s behavior is consistent with
what one wants.
Is this person Is this person Are these
people
rational?
rational?
rational?
We are ALL rational human
beings!!
Our behavior is always
consistent with what we
want.
So, what do we want?
Is it rational to be ignorant?
Buying a
Car
VS
Voting
Common Sense Economics
What Everyone Should Know About Wealth & Prosperity
by
James Gwartney, Richard Stroup, and Dwight Lee
12 Key Elements
of Economics
Twelve Key Elements of Economics
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Provide a bridge between common sense and
basic principles of economics.
Help you begin to “think like an economist.”
Provide important insights with regard to how
the world really works.
1. Incentives matter.
12 Key Elements of Economics
What Are Incentives?
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Incentives are the anticipated rewards
and penalties associated with choices.
Changes in incentives alter the way people
behave.
Incentives influence behavior at all
levels- personal, familial, business,
government, and national.
Inference

Human choice is influenced in a
predictable way by changes in incentives.
Incentives Matter!
Would the following cause you to change your
behavior:
Class attendance has no
effect on your grade
All students who play
tuba get a full ride
scholarship to college
All students get the
same grade no matter
what their test
scores
All test questions
come from the
textbook and not the
lecture.
All students must rise
and greet the instructor
enthusiastically or they
fail the course
In the Workplace
Selfishness vs. Self-Interest
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While people may be altruistic, self-interest
prevails
Example: Mother Theresa vs. John Muir
Selfishness vs. Self-Interest
•
Mother Theresa would have sacrificed the
wilderness of India to provide more hospitals
Selfishness vs. Self-Interest
•
John Muir would have sacrificed more
hospitals to protect more wilderness
Selfishness vs. Self-Interest
•
•
Each person’s concerns and vision are focused
on a narrow set of ends
– they are self-interested
Each person is willing to see sacrifices made in
other goals they deem less important in order
to further their own goals
Volunteerism…
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Incentives matter to
everyone, including
volunteers and charitable
organizations.
What incentives do
volunteers have? Are
they only monetary?
Describe some incentives
offered to encourage
people to volunteer,
donate blood and assist
Habitat for Humanity in
the building of houses.