Activator Chapter 1

List the problem that each of the following faced:

1. The Consumers – You and I

2. The Producer – Mattel

3. The Stores – Babies, Toys R Us, Walmart, etc.

• During the holiday season of 1996, a children's toy appeared on Good Morning

America. The toy, produced by Mattel, had sat on the shelves with very little sales until it

appeared on the show. After the toys appearance, its popularity improved and it became

the most sought after product of the holiday season. Unfortunately, Mattel did not

anticipate the doll’s popularity, only producing 400,000 units, and were not able provide

the product in a timely manner at the store level (over 1,000,000 were in demand).

Unit 1: Basic Economic Concepts

CHAPTER 1 – The Ten Principles of Economics

Scarcity - fundamental problem facing all people; unlimited

wants and limited resources to satisfy those wants

Society cannot produce all the goods and services people

want

Scarcity applies to everyone; no one can have an endless

supply of everything

e.g. - money, time, rest, etc.

Application Question List three things that you feel are scarce in your life,

what has caused them to become scarce?

What is Economics? Economics – the study of choices; how society manages its resources

“Oikonomos” (Greek) “One who manages a household”

What do economists study?

Individual Decisions – how much they work, save, and invest, what they

buy, how they interact etc.

Social decisions – allocation of resources, decisions of governmental

agencies, etc.

Forces and trends – growth in income, unemployment, inflation, etc.

The Ten Principles of Economics Principle 1 – People face tradeoffs

Principle 2 – The cost of something is what you give up to get it

Principle 3 – Rational people think at the margin

Principle 4 – People respond to incentives

Principle 5 – Trade can make everyone better off

Principle 6 – Markets are usually a good way to organize economic activity

Principle 7 – Governments can sometimes improve market outcomes

Principle 8 – A country’s standard of living depends on its ability to produce goods and services

Principle 9 – Prices rise when the government prints too much money

Principle 10 – Society faces a short-run trade-off between inflation and unemployment

How People Make Decisions

Principle 1: People face trade-offs Trade-off – a sacrifice that must be made to

obtain a certain choice, rather than the

alternative choice

We always give up something to get

something else

“There is no such thing as a free lunch.”

Individuals, households and society all

face tradeoffs

Efficiency vs. Equality Tradeoff (social)

Efficiency – society is getting the maximum

benefits from its scarce resources

Equality – society distributes benefits

uniformly among its members

Welfare system, unemployment

insurance, food stamps, etc.

Choice Alternatives

Choices

What you

would have

done if you

didn’t come to

class

1. Coming to

Economics

Class

1.

2.

3.

1.

Application Question Directions: Create a 3 column chart, label it as shown below. In the second

column, list 3 possible alternatives that you could have made other than

your choice to come to school. In the third column, list the alternative that

you would have desired the most.

How People Make Decisions Principle 2: The cost of something is what you give

up to get it Opportunity Cost – used by economists to measure the cost of

decision-making; value of the most desirable alternative given up

Next best alternative use of money, time, or resources (Highest-

valued alternative forgone)

8

Coming to Economics Sleeping (Opportunity Cost)

Trade-Offs

Individuals and Trade-Offs

Parents and Trade-Offs

Society and Trade-Offs

Turn to page 4 in your book. Write a summary and example(s) of each of the

following listed below.

How People Make Decisions Principle 3: Rational people think at the margin Margin - an edge and the area immediately adjacent to it; a border

Rational people - systematically an purposefully do the best they

can to achieve their objectives

Marginal change - small incremental adjustments to a plan of action

Rational decision maker

Marginal benefits > Marginal costs

10

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep

Economics

or

Thinking at the Margin

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes

Economics Yes

or

Thinking at the Margin

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes No

Economics Yes Yes

or

Thinking at the Margin

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes No Yes

Economics Yes Yes Yes

or

Thinking at the Margin

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes No Yes No

Economics Yes Yes Yes No

or

Thinking at the Margin

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes No Yes No No

Economics Yes Yes Yes No Yes

Thinking at the Margin

or

Alternatives

Criteria

Immediate

Satisfaction

Long Term

Benefits

Entertaining Immediate

Financial

Benefits

Necessary for

Long-term

success

Sleep Yes No Yes No No

Economics Yes Yes Yes No Yes

Thinking at the Margin

or

Options Benefit Opportunity

Cost

Thinking at the Margin

Options Benefit Opportunity

Cost

1st hour of extra

study time

Grade of C on

test

One hour of

sleep

Thinking at the Margin

Options Benefit Opportunity

Cost

1st hour of extra

study time

Grade of C on

test

One hour of

sleep

2nd hour of

extra study

time

Grade of B on

test

2 hours of

sleep

Thinking at the Margin

Options Benefit Opportunity

Cost

1st hour of extra

study time

Grade of C on

test

One hour of

sleep

2nd hour of

extra study

time

Grade of B on

test

2 hours of

sleep

3rd hour of

extra study

time

Grade of B+ on

test

3 hours of

sleep

Thinking at the Margin

How People Make Decisions Principle 4: People respond to incentives Incentive - something that influences a person to act; positive

(reward) or negative (punishment)

Law of unintended consequences - outcomes that are not the

outcomes intended by a particular action

Gasoline tax – consumer purchases smaller more fuel efficient cars;

carpool; public transportation

Stossel Video

http://www.youtube.com/user/StosselClassroo

m#p/u/29/iuZOAiga_9A

Unintended Consequences

How People Interact Principle 5: Trade can make everyone better off Specialization – allows each country to focus on the activities that

cost them the least

People/countries can buy a greater variety of goods and services

at lower cost

How People Interact Principle 6: Markets are usually a good way to

organize economic activity Market – buyers and sellers meet to exchange goods and services

Market Economy (capitalism/free enterprise) – economic decisions, what to

produce, how to produce it, who to produce it for, are made through by

individuals based on exchange of goods and services

Adam Smith’s Invisible Hand – natural flow of the economy based on the

consumer and producer relationship (supply and demand)

Command Economy (communism) – contrast of market economies;

government officials (central planners) allocate economy’s scarce resources

How People Interact Principle 7: Governments can sometimes

improve market outcomes

Role of Government

Enforce the rules – business ethics,

maintain fair trade, produce public

goods, fair employment, etc.

Market failure - situation in which the

market on its own fails to produce an

efficient allocation of resources

Environmental

Protection/pollution, public goods

to free-riders, monopolies, etc.

Externality - impact of one person’s

actions on the well-being of a

bystander

Market power (monopoly) - ability of a

single person (or small group) to

unduly influence market prices

Property rights – ability of an individual

to own and exercise control over

scarce resources

Junk!!!

Stossel Video

http://www.youtube.com/watch?v=EVHw_U1

v3HI

How the Economy as a Whole Works Principle 8: A country’s standard of living depends

on its ability to produce goods and services Productivity – Quantity of goods & services produced from each unit

of labor input

2009 - US worker avg. 46,436 India was $1030

Higher productivity – Higher standard of living

How the Economy as a Whole Works

Principle 9: Prices rise when the government prints

too much money Inflation - An increase in the overall level of prices in the economy

Growth in quantity of money reduces the value of money

Hyperinflation in Germany after WWI, Zimbabwe dead currency

in 2009

How the Economy as a Whole Works Principle 10: Society faces a short-run trade-off

between inflation and unemployment Long-run effect of monetary injection is inflation

Short-run effects of monetary injections:

Business cycle – fluctuations in economic activity

Stimulates - overall level of spending

Higher demand for goods and services

Firms – raise prices, hire more workers, produce more goods and services

Lower unemployment

People Face Tradeoffs

Description: individuals, businesses and

households face alternative decisions that could be

made, but must always give up something in order to

obtain something else in light of scarce resources.

Picture: this picture represents an individual

deciding between various alternatives and facing the

tradeoff dilemma.

The Ten Principles of Economics Poster Project

Poster Requirements:

1. Title - The Ten Principles of Economics.

2. Summary Statement – “The Ten

Principles of Economics provide a

general guide and outline to the

important concepts found in economics.”

3. At least 10 pictures to represent each of

the principles.

4. Label, describe and summarize picture

for each of the 10 principles

Principle 1 – People face tradeoffs

Principle 2 – The cost of something is what you give up to get it

Principle 3 – Rational people think at the margin

Principle 4 – People respond to incentives

Principle 5 – Trade can make everyone better off

Principle 6 – Markets are usually a good way to organize economic activity

Principle 7 – Governments can sometimes improve market outcomes

Principle 8 – A country’s standard of living depends on its ability to produce goods and services

Principle 9 – Prices rise when the government prints too much money

Principle 10 – Society faces a short-run trade-off between inflation and unemployment

The Ten Principles of Economics Group 1

Principle 1 – People face tradeoffs

Principle 2 – The cost of something is what you give up to get it

Group 2

Principle 3 – Rational people think at the margin

Principle 4 – People respond to incentives

Group 3

Principle 5 – Trade can make everyone better off

Principle 6 – Markets are usually a good way to organize economic activity

Group 4

Principle 7 – Governments can sometimes improve market outcomes

Principle 8 – A country’s standard of living depends on its ability to produce goods and services

Group 5

Principle 9 – Prices rise when the government prints too much money

Principle 10 – Society faces a short-run trade-off between inflation and unemployment

Due Monday 1-24 1. Chapter 1 Notes

2. Homework – Incentive Pay

3. Homework – Adam Smith and the Invisible Hand

4. Homework – Why You Should Study Economics

5. Youtube Video – Scarcity and Choice

6. Youtube Video – Micro vs. Macro

7. Daily Tens

8. Chapter 1 Practice Review

*Reminders – Ch. 1 Self-Test Online, print Ch. 2 Notes, take Ch. 2 Pre-quiz by tuesday