Knowledge Goal

Understand that economics is about the

relationship between scarcity and how
choices are made.

Understand that economics is about the relationship between scarcity and how choices
are made.

Learning Objectives:
1. Define Economics, Scarcity, and Opportunity
Cost
2. Recognize the Connection Between Scarcity
and Tradeoffs
3. Recognize that Scarcity Implies Choices
4. Define TANSTAAFL

What is Economics?
Economics is the study of the
choices that consumers, business
managers, government officials,
and you make in order to attain
goals, given scarce resources.

What is Economics?
Economics is the study of the
choices that consumers, business
managers, government officials,
and you make in order to attain
goals, given scarce resources.
Look more closely at each of the words in red

First, choices

Everything
When discussing
involveschoices,
making a choice.

economists usually begin by

stating that everyone has
unlimited wants.
Do you agree or
disagree?
Post to the Unlimited Wants discussion
board now.
Do you agree with the statement "Everyone
has unlimited wants?" What about Bill Gates
or Pope Francis? Post your thoughts or
comment on someone elses post. 5

Everything involves making a choice.

Everyone has unlimited wants.
Our unlimited wants exceed the
limited resources that are
available. That is, the resources
used to do things are scarce.

Either post your response to two of the following

questionson the Scarcity discussion board
orpost your response to one
questionandcomment on the post of someone
else.
1. What are the resources you are using to view
these notes today? Are these resources
limited, i.e., scarce?
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2. Does Bill Gates have scarce resources?

Since resources are scarce

when we use a portion of a resource
for one use
We cant use it for
some other use

That is, there is a

tradeoff between alternative
uses.
7

So, scarcity leads to tradeoffs

that have to be made.
rc
Sca

ity

eo
d
a
r
T

ffs

Doing more of one

activity means doing
less of some other
activity.
Taking more classes,

buying more gas,

having more children
means you have to
up something
More formally, producinggive
or consuming
more of
else.
one good or service means
producing or
consuming less of some other good or service.
This
is the or
same
thing as more
saying
Producing
consuming
ofthat
one
good or
service means giving up the opportunity to
produce or consume some other good or
service. In economics lingo we say that
Every activity has an Opportunity Cost
9

Since there are many opportunities that

we give up when we do something (think
of all the things you are giving up in
order to read these slides) we
specifically define the opportunity cost
as
Opportunity
Cost

highest

the next best or

valued alternative that must be given
up in order to engage in an activity.
Think of the things that you are giving up to
read these slides. Of those forgone
opportunities, which one do you value the most?
10
Whatever it is, that is your opportunity
cost.

So

Scarcity means that

there are tradeoffs
among the many
possible uses of our
resources.

11

The highest valued of

these alternative uses
is the opportunity cost
of using a resource.

ort
p
p
O

ost
C
ty
uni

12

ort
p
p
O

ost
C
ty
uni

Based on a
consideration of
opportunity costs,
individuals, firms,
and government
officials make
choices.

s
ice
o
Ch

13

Economics is the study of these

choices. Part of being an
economist is to
Examine what choices are made.
Predict what choices will be made
given certain circumstances.
Examine the consequences of the
choices that are made.
14

What is
Microeconomics?
Back to the definition of economics, we
have one more word in red to discuss.

Economics is the study of the

choices that consumers, business
managers, government officials,
and you make in order to attain
goals, given scarce resources.

Decision makers make choices in

order to attain their goals.
What are some common goals? Economists usually
assume that
Consumers choose to purchase goods that maximize
their personal satisfaction (economists call this
utility).
Producers or firms choose to produce and sell goods
in order to maximize their profits.
Government officials?
Students?
Post your responses to the following questions on the
Goals discussion board:
1.What is your opinion of the stated goals assumed for
consumers and firms?
2.In making their decisions, what goals do you think
government officials are trying to attain? E.g., what goal is
Mayor Tomlinson (Mayor of Columbus) seeking to attain?
16
3.In making your decisionsas a student, what goals are you

To complete this Knowledge Goal we note

that the formal definition of economics
that we have just been discussing can be
summed up in the simple word

TANSTAA
FL

This isnt really a word but an acronym

first coined by Robert Heinlein in one of
my favorite books The Moon is a Harsh
Mistress.
If you dont know what it stands for,
17
Google it. Do you see how it sums up

Go to MyEconLab and take

Module 1 Quiz 1

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End
Module 1 PPTs