Pump Primer What do you think of when you hear the term “economics?” (Carper, 1) “ECONOMICS for Christian Schools” By Alan J. Carper Bob Jones University Press. 1998 Unit 1: What Is Economics? Chapter 1 Part I Economics: The Science of Choice Production Possibility Frontier and Graphs Chapter 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. 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. 1:9-12; Phil 1:27) Economics It is the common sense “science that studies the choices that individuals, businesses, government, and entire societies make as they cope with scarcity and the incentives that influence and reconcile our choices.” (Blade et al. 3) • The continuing inability of man to provide everything he wants and needs necessitates choices. Economic Scope and Purpose Microeconomics Versus Macroeconomics: “Economists study their subject on two levels:” Microeconomics Macroeconomics Microeconomics examines the individual components of the economy. “What causes a person to save money?” “How does one business firm set its prices?” “How will the closing of a factory affect the individual community?” (Bade 3) Macroeconomics examines the economy as a whole (aggregates). Concerned with large-scale economic choices and issues. Study of national and global economies. (Carper, 8) Macroeconomics “What causes bank interest rates to rise and fall?” “What causes large-scale national unemployment?” “Why do the Japanese sell more goods to the United States than the United States sells to Japan?” (Carper, 8) There are two big economic questions: • “How choices determine what, how, and for whom goods and services get produced? • When do choices made in selfinterest also promote social interest?” (Blade et al. 3) Three Basic Questions What? What goods and services get produced and in what quantities? (Blade et al. 4) Three Basic Questions How? How are goods and services produced? (Blade et al. 4) Three Basic Questions For Whom? For Whom are the various goods and services produced? (Blade et al. 4) . A good - any tangible (physical) thing that has a measurable life span. newspaper VCR/CD Players food (Carper, 4) A service is any intangible item = labor. customer service accountant librarian (Carper, 4) “Goods and services that bear a positive economic cost are known as economic goods and economic services.“ (Carper, 4) “Goods and services that you are paid to take are said to be negative economic cost and are called nuisance goods and services.” Such as, toxic waste, garbage, and sewage. Economists argue that noise pollution and visual distractions, such as, unsightly billboards constitute nuisance services. “Some firms make significant profits by taking nuisance goods and turn them into economic goods – a process called recycling.” (Carper, 5) When do choices made in self-interest also promote social interest? The choices that are best for the individual who makes them are choices made in the pursuit of self-interest. The choices that are best for society as a whole are choices made in the social interest. Why Do We Make Choices? We make choices numerous times each day: “Should I get out of bed or sleep just a few more minutes? “ “Do I want oatmeal or pizza for breakfast?” Shall I drink milk, orange juice, or Dr. Pepper? (Carper, 2) Why are choices necessary? The quality of a person’s life is directly related to the quality of each choice he/she has made in their life. To understand choice is to understand life and to understand economics is to understand choice. 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 (“The New King James”) 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) Core Economic Ideas Rational Choice Opportunity Cost Benefit Margin Incentives (Bade 13) Rational Choice A rational choice is a choice that uses the available resources to best achieve the objective of the person making the choice. We make rational choices by comparing costs and benefits. (Bade 13) Cost: What You Must Give Up Opportunity Cost Is the basis of choice • The best thing that you must give up to get something—the highest-valued alternative is forgone. • “Opportunity benefit of a choice is the satisfaction a person receives from the choice.” • “Opportunity cost is the satisfaction one gives up by not choosing what was second best.” (Bade 14) On the Margin • A choice made on the margin is a choice made by comparing all the relevant alternatives. Making a Rational Choice • When we take those actions for which marginal benefit exceeds or equals marginal cost. (Bade 15) Marginal Cost vs. Marginal Benefit Marginal cost is the cost of a one-unit increase in an activity. Marginal benefit is what you gain when you get one more unit of something. (Bade 15) Incentives “A reward or a penalty...that encourages or discourages an action.” There are marginal costs and marginal benefits to incentives. Professional Sports Actor/Actress (Bade 13) To Choose or Not to Choose? That Is the Question Activity 1 NCEE CAPSTONE: EXEMPLARY LESSONS FOR HIGH SCHOOL 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-ornothing 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 four students. Read the two cases and answer the questions together. You will need one individual from your group to be your spokesperson. Example 1 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. Customers might not buy as many sandwiches – reduced sales. Keep prices and profits about the same. Discontinue selling sandwiches and introduce less expensive lunches. Customers might not like the new product, maybe lose sales. Keep profits about the same. Raise prices of sandwiches Customers might buy less, maybe lose money. Keep profits about the same. Example 2 Alternatives: Possible Cost: Possible Benefit: Produce a different product. Difficult to transform the plant and equipment. Keep profits about the same. Produce airbags and GPS or a foreign producer. Difficult to get a contract. Increase sales 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. 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. "The New King James Version." Logos Bible Software. CD_ROM. ed. 2004.