ECON 2030 Taylor Wright
7 June 2010 Chapter 1
I. The Basics
1. Economies and Economics
a. Definitions
Economics the study of how societies go abut provisioning themselves with the material means of existence
b. Answer 4 questions to define economics
1. What material things will be provided?
Chairs, computers, furniture, etc.
2. How do we produce the materials?
How are we going to make these things? Land, people, machines, etc.
3. For Whom?
Who gets the stuff being produced?
Who will pay the price?
First come, first serve.
4. Consequences?
Consequences on Society as a whole.
c. Markets
Where goods are exchanged
Not necessarily a physical place
, A set of social interactions where goods and services are exchanged for money.
d. Microeconomics
We focus on the behavior of individual business relationships
Example: What Charlie had for breakfast.
e. Macroeconomics
Deals with consequences, the big picture.
Don’t focus on individuals.
II. Economic Reasoning—Economists look at the world from a choice making prospective using 3 concepts.
1. Opportunity Cost
a. Everything we do costs something.
b. If you do something, you are giving up doing something else.
c. Example: We’re in class, we aren’t somewhere else
d. Nonmonetary
e. Monetary
f. What’s given up when a choice is made
2. Margin
o Two decisions
Either/Or
How many hours do I take? How much?
o Small increments of change
, 3. Rationality
o Choose the option that’s best
o Rational choice
III. Examples of Economic Reasoning
1. Bibi the Tutor, parts 1 and 2
o Part I. Bibi is a poor college student who tutors on Friday and Saturday nights for $25 per session. If she cancels a session, she
has to skip the next session and pay for both Costing her $50. She wants to go to a concert. She buys the ticket 8 months
before the concert, which cost her $50, but she forgets and has to tutor the night of the concert. She can do one or the other.
Either/Or Choice
Relevant Costs Something to gain or lose
Sunk Costs something that is not recoverable
Concert benefit is perceived pleasure
The opportunity cost is the chance to hold the tutoring appointment.
The $100 is a sunk cost because she loses it no matter what
Rational decision
Go to the concert if the benefit is greater than or equal to the cost. Concert Benefit > Cost
Go to the tutor if the pleasure is less than or equal to the cost.,
Pleasure < the cost.
If cost and benefit are equal, than either result works
o Part II. If Bibi finds out about the concert on the day of the concert.
Now the $50 for the ticket is a relevant cost because she hasn’t bought the ticket yet.
Go to the tutor if the pleasure is < $100
7 June 2010 Chapter 1
I. The Basics
1. Economies and Economics
a. Definitions
Economics the study of how societies go abut provisioning themselves with the material means of existence
b. Answer 4 questions to define economics
1. What material things will be provided?
Chairs, computers, furniture, etc.
2. How do we produce the materials?
How are we going to make these things? Land, people, machines, etc.
3. For Whom?
Who gets the stuff being produced?
Who will pay the price?
First come, first serve.
4. Consequences?
Consequences on Society as a whole.
c. Markets
Where goods are exchanged
Not necessarily a physical place
, A set of social interactions where goods and services are exchanged for money.
d. Microeconomics
We focus on the behavior of individual business relationships
Example: What Charlie had for breakfast.
e. Macroeconomics
Deals with consequences, the big picture.
Don’t focus on individuals.
II. Economic Reasoning—Economists look at the world from a choice making prospective using 3 concepts.
1. Opportunity Cost
a. Everything we do costs something.
b. If you do something, you are giving up doing something else.
c. Example: We’re in class, we aren’t somewhere else
d. Nonmonetary
e. Monetary
f. What’s given up when a choice is made
2. Margin
o Two decisions
Either/Or
How many hours do I take? How much?
o Small increments of change
, 3. Rationality
o Choose the option that’s best
o Rational choice
III. Examples of Economic Reasoning
1. Bibi the Tutor, parts 1 and 2
o Part I. Bibi is a poor college student who tutors on Friday and Saturday nights for $25 per session. If she cancels a session, she
has to skip the next session and pay for both Costing her $50. She wants to go to a concert. She buys the ticket 8 months
before the concert, which cost her $50, but she forgets and has to tutor the night of the concert. She can do one or the other.
Either/Or Choice
Relevant Costs Something to gain or lose
Sunk Costs something that is not recoverable
Concert benefit is perceived pleasure
The opportunity cost is the chance to hold the tutoring appointment.
The $100 is a sunk cost because she loses it no matter what
Rational decision
Go to the concert if the benefit is greater than or equal to the cost. Concert Benefit > Cost
Go to the tutor if the pleasure is less than or equal to the cost.,
Pleasure < the cost.
If cost and benefit are equal, than either result works
o Part II. If Bibi finds out about the concert on the day of the concert.
Now the $50 for the ticket is a relevant cost because she hasn’t bought the ticket yet.
Go to the tutor if the pleasure is < $100
