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PUMP PRIMER
• What do you think of when you
hear the term “economics?”
(Carper, 1)
CHAPTER 1
What is Economics?
CHAPTER 1
Objectives:
• Define economics.
• Explain why choices are necessary.
• Explain how a Christian’s and an unbeliever’s perspective of economics
differ.
• Differentiate between economic goods and services, nuisance goods and
free goods and services.
• Contrast the concepts of intrinsic and subjective value.
• Describe the opportunity benefits and opportunity costs of a purchase.
• Differentiate between microeconomics and macroeconomics.
• Differentiate between positive and normative economics.
CHAPTER 1
Biblical Integration:
• In this world of limited resources we as
Christians need to make wise and godly
choices. Every decision we make should be
pleasing unto God.
• We should constantly be thinking of our
testimony before God and mankind. (Col. 1:912; Phil 1:27)
CHAPTER 1
Economics
the common-sense science of how and why
people, businesses, and governments make
the choices they do
pp. 2-6
CHAPTER 1
Economics
Greek
oikos = house
nomos = administration of
pp. 2-6
• Chapter 1
• pp. 2-6
Economics is a Science.
1. Science always begins with observation.
2. Scientists use their observations as a
basis to predict future cause-and-effect
relationships.
• Chapter 1
• pp. 2-6
Economics is a Science.
3. In many cases scientists go one step
further by attempting to control future
events through altering important
variables.
CHAPTER 1
As Christians we are to be careful and
wise in our choices.
“There is a way that seems right to a man,
but its end is the way of death.”
Prov. 14:12
“All the ways of a man are pure in his own
eyes, but the Lord weighs the spirits.”
Prov. 16:2
pp. 2-6
 While man can be self-deceived in his
choices – God determines the true motives
(Prov. 21:2; 24:12; I Sam 16:7; I Cor. 4:4).
 Even when we make the wrong choices
God will use those choices for His
purposes
(Gen. 50:0; I King 12:15; Ps. 119:133;
Jer. 10:23; Dan. 5:23-30; I Cor. 3:19, 20)
CHAPTER 1
Choices are necessary because two ideas
pull you in opposite directions.
It is impossible for you to satisfy both.
pp. 2-6
CHAPTER 1
Insatiability
• Everyone has unlimited
wants.
Scarcity
• Everything is limited in
quantity.
pp. 2-6
There are two big economic questions:
• “How choices determine what,
how, and for whom goods and
services get produced?
What?
What goods and services get
produced and in what
quantities?
How?
How are goods and
services produced?
For Whom?
For Whom are the various goods
and services produced?
• pp. 7-12
• Chapter 1
Classification of Wants
• goods = tangible things with measurable
life spans
newspaper
VCR/CD Players
food
• Chapter 1
• pp. 7-12
Classification of Wants
• services = intangible items
customer service
accountant
librarian
• Chapter 1
• pp. 7-12
Classification of Cost
• economic goods/services = positive cost
• Chapter 1
• pp. 7-12
Classification of Cost
• nuisance goods/services = negative cost
Such as, toxic
waste, garbage,
and sewage,
unsightly billboards constitute
nuisance services.
• Chapter 1
• pp. 7-12
• Some firms make significant profits by
taking nuisance goods and turn them into
economic goods – a process called
recycling.
• Chapter 1
Classification of Cost
• free goods/services = zero cost
• pp. 7-12
TO CHOOSE OR NOT TO
CHOOSE?
THAT IS THE QUESTION
ACTIVITY 1
NCEE
CAPSTO NE: EXEM PLARY LESSO NS FO R HI G H SCHO O L
ECONOMICS
NEW YORK, NY.
OBJECTIVES
• Identify alternatives in various choice
situations
• Identify costs and benefits
associated with various alternatives
• Make economizing choices, given
competing alternatives.
INTRODUCTION
• Productive resources are limited. Therefore,
people can not have all the goods and services
they want; as a result, they must choose some
things and give up others.
• Effective decisions making requires comparing
the additional costs of alternatives with the
additional benefits. Most choices involve doing a
little more or a little less of something few choices
are all-or-nothing decisions.
ACTIVITY 1
The purpose of this lesson is to help you
develop the ability to solve economic
problems.
To do this, you need to learn some basic
assumptions of economics.
 One assumption has to do with
whether or not people have choices.
ACTIVITY 1
• People often think they have no choice.
• Example:
•
Todd recently purchased his own car on credit.
He works at a part-time job at an auto-wrecking
firm to earn the money he needs to make
payments on his new car. Lately, his work in
school has declined. When his teacher asked him
if he was studying for the tests, he replied, “Not
really, I’d like to study more, but I have no choice.
I’ve got to keep working to pay off my car loan.”
ACTIVITY 1
• Did Todd have alternatives in his
situation?
• Have you ever felt like Todd, that
there really wasn’t a choice?
• Read the case in your Activity
handout.
ACTIVITY 1
• What was Ashley’s problem?
• What alternatives did Ashley have?
• What were the costs of each
alternative?
• What were the benefits?
ACTIVITY 1 LESSON
• Break-up into groups of no more
than three students.
• Read the two cases and answer the
questions together.
• You will need one individual from
your group to be your spokesperson.
Alternatives:
Possible Cost:
Possible Benefit:
Keep the price the same.
Reduce profits, maybe
lose money and go
out of business.
Keep prices the same
and customers happy.
Keep the price the
same by discontinuing
some of the
sandwiches’ special
features.
Discontinue selling
sandwiches and
introduce less expensive
lunches.
Customers might not
buy as many
sandwiches –
reduced sales.
Keep prices and profits
about the same.
Customers might not
like the new
product, maybe
lose sales.
Keep profits about
the same.
Customers might buy
less, maybe lose
money.
Keep profits about
the same.
Raise prices of
sandwiches
EXAMPLE 2
Alternatives:
Produce a different product.
Possible Cost:
Possible Benefit:
Difficult to transform
the plant and
equipment.
Difficult to get a
contract.
Keep profits about the
same.
Close the plant and go
bankrupt
Lose money.
Employees out of
work.
No more worries
about competing
with foreign
producers.
Restrict imports
Few obvious costs to
this owner and
workers but
increased costs for
others
Increased sales and
jobs for his
workers.
Produce airbags and
GPS or a foreign
producer.
Increase sales
CHAPTER 1
What is Economics?
Part Two
PUMP PRIMER
• Using your textbook, define insatiability
and scarcity.
(Carper, 1)
A CHOICE TO MAKE
NCEE
CHOICES AND CHANGES IN
LIFE, SCHOOL, AND WORK
N E W Y O R K , N Y.
OBJECTIVES
• Generate several alternative courses of
action to solve a problem.
• Understand that they have alternatives
and choose from among them.
• Explain the meaning of scarcity and
opportunity cost.
ACTIVITY 1
• Read the first case and answer the questions
as a group.
• Scarcity
• Is the condition of not being able to have
everything we want.
• Apply this definition to Tony’s situation
• What is scarce?
• Tony’s time.
ACTIVITY 1
• Whenever our wants exceed our ability to
satisfy them we have scarcity.
• Society faces scarcity in allocating its
resources to produce goods and services.
• Individuals face scarcity in budgeting their
money and time.
• In each case we have to make decisions.
ACTIVITY 1
• Value
• Is something a person considers important
which is supported by a set of beliefs.
• In Tony’s situation, how important is it for him
to go to the movies?
• Our values and beliefs influence our decisions.
• What values influenced your decision in
discussing Tony’s case?
ACTIVITY 1
• Situations occur in life that require decision making. Very
often, those situations are related to scarcity—that is, our
wants are greater than our resources.
• Usually, there is more than one alternative in a situation from
which to choose, just as there is more than one value to
guide our decisions.
• Individuals have the power to make choices in scarcity
situations, and our values influence our choice of which
alternative is best.
ACTIVITY 2
• Now read Angela’s Problem and answer the
questions as a group.
• What advice would you give Angela?
• What would Angela be giving up in each case?
• Her opportunity cost –the highest valued alternative
that must be given up when another option is
chosen.
OBJECTIVES:
• Contrast the concepts of intrinsic value and
subjective value.
• Describe the opportunity benefits and costs of a
purchase.
• Differentiate between microeconomics and
macroeconomics.
• Differentiate between positive economics and
normative economics.
CHAPTER 1
economic value
value of a good or service in dollars
pp. 7-12
CHAPTER 1
diamond-water paradox
What has more economic value: a handful of
diamonds or a single glass of water?
pp. 7-12
CHAPTER 1
CARL MENGER
• Put the riddle to rest.
• The value of an object is not
determined by anything
having to do with the good,
but rather by the subject, the
person buying the good or
service.
• Subjective Value
p. 8
CHAPTER 1
Subjective Value
• An object’s usefulness to the buyer that
determines its worth
pp. 7-12
• Chapter 1
• pp. 7-12
• Principles of Economics (1871)
• argued that there is not just one economic
value for every good
CHAPTER 1
intrinsic value
• based on the nature of
the product
pp. 7-12
subjective value
• determined by the
usefulness to the buyer
CHAPTER 1
opportunity benefit
the satisfaction you receive from the choice
you make
pp. 7-12
CHAPTER 1
opportunity cost
the satisfaction you give up or the regret you
experience for not choosing differently
pp. 7-12
• Chapter 1
Decision Equation
• opportunity benefit ─ opportunity
cost = decision
• satisfaction received ─ satisfaction
regretted = decision
• pp. 7-12
CHAPTER 1
util
an economic term for an imaginary unit of
satisfaction
pp. 7-12
CHAPTER 1
hidden costs
certain amounts of regret in every decision
pp. 7-12
Utils of Satisfaction!
•
Shoes = Opportunity Benefit or Satisfaction = 9 utils
(YOO till)
•
Steak Dinner = Opportunity Cost or Regret = 10
utils
Purchased shoes over dinner:
9 – 10 = 1 negative util
Purchased dinner over shoes:
10 – 9 = 1 positive util
(Carper, 6)
• Chapter 1
• pp. 12-14
Scope of Choices
• Microeconomics: choices made by
individual units
• Macroeconomics: large-scale economic
choices and issues
SCARCITY AND ABUNDANCE
UNIT 1
LESSON 2
by
Capstone: Exemplary Lessons for High School
Economics. National Council on Economic Education,
New York, NY
Objectives:
• Identify two definitions of term scarcity.
• Select examples consistent with the two
definitions.
• Identify conditions that might cause people
to treat scarce resources as if they were
not scarce.
Introduction:
• Economists insist that scarcity exists and
forces people to make choices about the use
of resources.
• This activity is to clarify the concept of
scarcity and to demonstrate how that concept
can be used in analyzing human behavior.
Definitions:
1. Involves a relative relationship in which scarcity
depends on how much something is available
relative to how much is wanted. (If a small
amount of something is available, that something
is scarce.)
2. The importance of more than one valuable use.
(Goods are scarce if choosing one valuable use
of them means giving up another valuable use.)
Activity:
• Working with one other person, read each
statement and then decide which
examples do and do not illustrate the
concept of scarcity.
Answers:
A.
B.
C.
D.
E.
F.
Not scarce. No alternative valuable use.
Scarce. The books may be read or they may be recycled. Two
valuable uses.
Scarce. The one book could be used by five different people; it
has valuable alternative uses.
Not scarce. Same number relationship, but the information in the
book is not valuable to the five students.
Scarce. Petroleum has many valuable uses in Japan.
Scarce. Petroleum has many valuable uses in Saudi Arabia, and it
can be sold to other people in other countries. Several valuable
uses.
Activity 2
A.
B.
C.
D.
Scarce resources treated as not scarce. The water has other valuable
uses, such as irrigation or sewer treatment.
Scarce resource treated as not scarce. The food could feed hungry
people; it could be stored for future consumption; or it could be used as
compost to improve soil conditions in gardens
Scarce. A difficult example – oxygen in the air around us is not scarce.
People routinely acquire it at no cost. There is more of it than individuals
can use. But oxygen underwater is scarce, as are the resources needed to
capture oxygen and store it in containers for underwater use.
Not Scarce. The pebble have no valuable alternative use. The resources
necessary to move the pebbles [time and effort, for example] are scarce.
They could be used for other valuable purposes.
THE ECONOMIC WAY OF
THINKING
MICRO UNIT 1
LESSON 1
by
Advanced Placement Economics Teacher Resource
Manual. National Council on Economic Education,
New York, N.Y.
OBJECTIVES
• Define opportunity cost
• Define economic way of thinking
• Apply scarcity concepts to variety of
economic and noneconomic situations.
INTRODUCTION
• Economics has thousand of details that
can sometimes be confusing.
• This lesson will acquaints you with some
basic economic concepts and
methodology.
•
Everything has a cost.
“there is no such thing as a free lunch”
- every action cots someone time, effort or lost opportunities to
do something else.
Opportunity cost is the real cost of an item, including what must
be given up to obtain it
– people incur costs when making decisions, even when people
appear to pay nothing.
•
People choose for good reasons.
 People always face choices, however, if people have different
values, they may make different choices.
 Most of Economics concerns business and government
decision making. (Remember, these decisions are made by
people.)
 Normative economics “makes prescriptive statements
about how the economy should work” (Krugman 7)
 Positive economics “describes the way economy
actually works” (Krugman 7)
•
Incentives matter.
 Many believe economics is all about incentives.
 Supply and demand is about incentives
 Theory of the firm and factor markets are about incentives.
 Government decision making is about incentives
 Incentives change, people’s behavior changes in predictable
ways.
•
People create economic systems to influence choices and incentives.
 Cooperation among people is governed by written and unwritten
rules that are the core of an economic system.
 As rules change, incentives and behavior change.
 The success of market systems and the failure of communism are
rooted in incentives.
•
People gain from voluntary trade.
• People will trade when they believe the trade makes them
better off.
• Always remember throughout this course that is people, not
countries, that trade and make decisions.
• Economics is all about trade.
•
Economic thinking is marginal thinking.
• Marginal choices involve the effects of additions and
subtractions from current conditions.
• A great deal of this course is about marginal costs and
benefits and will be discussed in every unit.
•
The value of a good or service is affected by people’s choices.
o Goods and services do not have intrinsic value; their value
is determine by the preferences of buyers and sellers.
o Intrinsic Value is the “value of a company or an asset
based on an underlying perception of the value.”
(“Intrinsic Value”)
o Because of this, trading moves goods and services to
higher-valued uses. This is why trading is so important.
o The price of a good or service is set by supply and
demand.
•
Economic actions create secondary effects.
• Good economics involves analyzing secondary effects.
• Example: rent controls make apartments more affordable to
some consumers.
• Controls also make it less profitable to build and maintain
apartments.
• The secondary effect is a shortage of apartments and
houses for rent.
•
The test of a theory is its ability to predict correctly.
 You will discuss many theories in Economics – all
of these theories have simplifying assumptions
 If the theory correctly predicts the
consequences of actions, it is a good
theory.
 Nothing is “good in theory but bad in practice.”
DO ACTIVITY 1 – DO YOU THINK LIKE AN
ECONOMIST?
1. Because it is desirable, sunshine is scarce.
T
F
Sunshine isn’t scarce because it isn’t limited; it
is a free good.
2.
Because it is limited, polio is scarce.
T
Polio isn’t scarce because it isn’t desirable.
F
3. Because water covers three-fourths of the earth
surface and is renewable, it cannot be
considered scarce. T
F
Scarcity is a relative, not an absolute, concept. Because
resources are scarce and wants are unlimited, almost
everything to scarce. If you pay an opportunity cost to use a
good or service, it is scarce. If you pay a positive price for a
good or service, it is scarce. Water may cover three-fourths
of the earth but we pay an opportunity cost and a positive
price for clean water everywhere. Of course, water may be
scarce in the desert than in the wetlands. Only a government
can actually make water cheaper in a desert.
4. The main cost of going to college is tuition, room and
board. T
F
An important opportunity cost of going to college is
lost earnings. If you could earn $20,000 a year by
working, you will sacrifice $80,000 during four years
of college.
Both Q-5 & Q-6 deal with the law of supply and demand.
People tend to buy more of something when the price is
lower and less when the price is higher.
Price includes money as well as such things as time,
aggravation, inconvenience and moral guilt. Sellers will
try to sell more of something if the price is higher and less
of it if the price is lower. This conflict resolved through
the market.
5. If mass transportation fares are raised, almost
everyone will take the trains anyway.
T
F
It is false because, if all other things are equal, less
mass transportation will be purchased if the price is
higher. The price could be increased in terms of
dollars, inconvenient schedules, crime and filthy cars.
The demand curve for transportation would have to be
perfectly inelastic, or vertical, for the answer to this
question to be True. (We will discuss this issue later in
the semester.)
6. You get what you pay for.
T
F
The price of something depends on supply and
demand, not on usefulness or on some criterion
of quality. Water is more useful than diamonds,
but it has a lower price. What you pay for a
good or service depends on the market price
determined by supply and demand.
7. If someone makes an economic gain, someone else
loses. T
F
8. If one nation produces everything better than another
nation, there is no economic reason for these two nations
to trade.
T
F
Both Q-7 and Q-8 concern gains from trade. When people trade voluntarily,
both parties expect to gain, or they wouldn’t trade.
One reason for this gain is the law of comparative advantage if one
person does legal work better than another and if a second person wordprocesses documents better than the first, they would gain by trade.
But would a lawyer who is the fastest word processor in town hire a
secretary? Yes, because of comparative advantage: Each person would
specialize in what he or she does comparatively better.
An hour spent word processing would is an hour not spent in legal work,
and the opportunity cost for the lawyer would be very high. The lawyer
will specialize in legal work and the secretary in word processing. The
total output of goods and services will increase. This concept can also
be applied to countries.
9. A nonregulated monopoly tends to charge the
highest possible price.
T
F
A monopoly charges a higher price than a competitive
market price, but the monopolist cannot repeal the law of
demand. If the price is too high, the monopolist might sell
nothing. A monopolist will try to establish a price at a point
that will make the greatest profit. This price is higher than
a competitive price and will result in less production.
10. A business owner’s decision to show more care for consumers
is a decision to accept lower of profits. T
F
Profits are an incentive for business to succeed. A business
that doesn’t care about its customers will not make high profits.
As Adam Smith (1723-1790) said, “It is not from the
benevolence of the butcher, the brewer or the baker that we
expect our dinner, but from their regard for their own interest.
We address ourselves not to their humanity but to their selflove, and never talk to them of our own necessities but of their
advantages.”
CHAPTER 1
WORKS CITED
Blade, Robin, and Michael Parkin. Foundations of Economics: Instructor’s
Manual. 2nd ed. Boston: Pearson Education, Inc., 2004.
Carper, Alan. Economics for Christian Schools. Greenville: Bob Jones University
Press, 1998.
“Intrinsic Value”. Investopedia.com. Web. 3 Jan 2009.
http://investopedia.com/terms/i/intrinsicvalue.asp
Krugman, Paul and Robin Wells. Macroeconomics. New York, NY: Worth
Publishers. 2006.
"The New King James Version." Logos Bible Software. CD_ROM. ed. 2004.