Ch 1, Constraints, Guideposts,classroom,pdf [Compatibility Mode]

Ch 1, Constraints, Guideposts,classroom,pdf [Compatibility Mode]

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 5/15/2008 Activity 1.1: Short answer • Are scarcity and poverty the same thing? Explain using the terms objective or subjective OR positive or normative, your normative, choice. choice. What is economics? The study of human behavior….. How is that different from Psychology or Sociology? What is economics? Economics…the study of human behavior and the choices that we behavior and the choices that we make. make. The study of human behavior….. ….in the presence of constraints. Sociology…the study of human behavior when there are no choices to make…. What constrains us? Constraints: • Society’s norms • Money • Parents…. • Time 1 5/15/2008 Why do we have constraints? Resources: • Scarcity — not enough of a good, freely in nature, • Anything used to produce other goods and as we would like. Where do constraints come from? do constraints come from? Needs-Limited Desires-Unlimited services…. – Natural — iron ore, oceans, rivers, land – Human — knowledge, experience, talent – Physical — tools, machinery, factories Resources-LIMITED Scarcity v. Poverty • Are these the same thing? • What do we know about poverty? The poverty level? The poverty level? Activity 1.2: Please describe your understanding of a life of poverty poverty…think about the lives of about the lives of the 12the 12-15% of Americans who live below the poverty level… • Index Card Please describe your understanding of a life of poverty…..think about the lives of the 12-15% of Americans 12who live below the poverty who live below the poverty level… level… $21,200 annual income for family of 4 in 2008 http://aspe.hhs.gov/poverty/figures-fed-reg.shtml 2 5/15/2008 Are/does the average family living in poverty in the US : Are/does the average family living in poverty in the US : • • • • • • • • • • Undernourished? Undernourished? Own their own home? Have air conditioning? Live in overcrowded conditions? Own a car? Own a television? Have cable/satellite? Own a microwave, stereo, dishwasher? A cell phone? – The average consumption of protein, vitamins, & minerals is virtually the same for poor poor and middle class children. – The poor are generally well nourished, but some do experience hunger. • 13% of poor families do experience hunger at some point during the year, usually short term. • 89% report their families have enough to eat • 2% say they often go hungry Are/does the average family living in poverty in the US : Are/does the average family living in poverty in the US : • Undernourished? • Own their own home? • Undernourished? • Own their own home? • Have air conditioning? 76% have A/C Have air conditioning? 76% have A/C – 46% own their own home. 46% own their own home. – Ave. home owned by poverty level family: 3 BR, 1 ½ baths, garage, porch or patio. • To contrast: 30 years ago, only 36% of the entire US population had A/C Are/does the average family living in poverty in the US : Are/does Are/does the average family living in poverty in the US : • Undernourished? • Own their own home? • Have air conditioning? air conditioning? • Own a car? • Undernourished? • Own their own home? • Have air conditioning? air conditioning? • Own a car? – 74% of families in poverty own a car – 30% own 2 or more cars 3 5/15/2008 Are/does the average family living in poverty in the US : Are/does the average family living in poverty in the US : • Undernourished? • Own their own home? • Have air conditioning? air conditioning? • Own a car? • Own a television? • Undernourished? • Own their own home? • Have air conditioning? air conditioning? • Own a car? • Own a television? • Have cable TV/satellite? – 97% have at least one color TV – Over 50% have 2 or more color TVs – 62% have cable TV or satellite Are/does the average family living in poverty in the US : Are/does the average family living in poverty in the US : • Undernourished? • Own their own home? • Have air conditioning? air conditioning? • Own a car? • Own a television? • Have cable TV/satellite? • Own a microwave (73%), dishwasher • • • • • • • • • (33%)? That’s That’s not to say some people in the US are not suffering… • Wide variation between the “top” poor • • and the “bottom” poor But most of today’s “poor” live in But most of today poor live in conditions conditions that just 30-40 years ago would 30have been deemed comfortable or even well off 1960— 1960—20% of US homes had no indoor plumbing. Not even a statistic for that today. Undernourished? Own their own home? Have air conditioning? Live in overcrowded conditions? Own a car? Own a television? Have cable/satellite? Own a microwave, dishwasher? A cell phone? Over 25% Scarcity v. Poverty In other words: Are these the same thing? No…. • Positive v. Normative Economics v. Normative Economics 4 5/15/2008 Scarcity v. Poverty Scarcity necessitates: • Positive v. Normative Economics • Rationing—allocating a scarce resource among those who want it – Types of rationing: • First come, first served--inefficient come first served • Subjective (prettiest, tallest, shortest) -- • Objective v. Subjective Economics arbitrary • PRICE!!! -- efficient, non-arbitrary!! non- • Competition — • By price—promotes income generation price— • Makes us better off…better, cheaper, faster Thus: Scarcity ≠ Poverty • Scarcity—objective definition Scarcity— • Poverty—subjective definition; arbitrary Poverty— So, are we better off or worse off? If you were born in: • Is life better today than 100 years ago? in Life Exectancy ((in years) Infant mortality ((deaths per 1000 live births) deaths Per Capita GDP (1998 dollars) Per Capita GDP (1998 dollars) High School Completion ((% of % John Stossel: Report : Are we better off Stossel: today than we were 100 years ago? Unemployment Rate Inflation income amount income amount adults) Computer Speed Conclusion: • We are SO fortunate…. – This country and this time of our lives (computations (computations / sec) 1900-1920 2000-2005 1900200047 100 $4,800 22 77.6 6.4 $45,845 88 0.02 ((1976) 1976) ? ? 2000+ ? ? The Economic Way of Thinking (8 Guideposts to Economic Thinking) 1. There is ALWAYS a tradeoff: – We call that tradeoff our Opportunity Cost • the highest valued option given up when you choose one thing over another choose – Coming to class – Lunch – Spouse 5 5/15/2008 The Economic Way of Thinking The Economic Way of Thinking 2. Individuals choose purposefully, 3. Incentives matter: Does FSU want you parking in handicapped spaces…how do you know? (8 Guideposts to Economic Thinking) therefore economically… • If you have 3 choices, which do you choose? How to you prioritize them? •Highest utility (8 Guideposts to Economic Thinking) We’ll be referring to this one almost every day of this semester! •Lowest cost Economics is primarily the study of: 1. Why people like to make money. 2. The management of a business. 3. The choices people make as a result of scarcity. 4. How to make money in the stock market. I. The Opportunity Cost of an activity is the lowest valued alternative foregone as the result of choosing that activity. II. Opportunity cost is subjective; it can be determined only by the person who chooses among the alternatives. 1. Both I and II are true 2. I is true, II is false 3. I is false; II iis true is false; II s true 4. Both I and II are false. The Economic Way of Thinking The Economic Way of Thinking 4. Economic thinking is marginal thinking 5. Information is a costly good. (8 Guideposts to Economic Thinking) People make decisions at the margin. “My poor mother…. last month she had to choose between eating and buying her prescription drugs!!” Lloyd Bentsen, DDTexas - running for VP of US, 1988 Fundamental lack of understanding of the difference between total costs and benefits vs. marginal costs and benefits. (8 Guideposts to Economic Thinking) Rational Ignorance — remaining ignorant Ignorance remaining ignorant about about something where the cost of obtaining the knowledge is greater than the benefit of learning it. 6 5/15/2008 The Economic Way of Thinking (8 Guideposts to Economic Thinking) 6. Remember the secondary effects— effects— – AFDC payments that increased the divorce rate 6. Remember the secondary effects— effects— – AFDC payments that increased the divorce rate AFDC began in 1939 with benefits substantially increased in increased 1960 1960 The Economic Way of Thinking The Economic Way of Thinking 6. Remember the secondary effects— effects— 7. The value of a good or service is subjective – What is something worth? Whatever someone is willing to pay for it. – You may value green space more than a You may value green space more than paved paved parking lot or you may value the parking lot more. – Economics tries not to make value judgments but instead looks at the measurable effects of, say, paving a parking lot. (8 Guideposts to Economic Thinking) – AFDC payments that increased the divorce rate – Increases in the money supply that give people more income but eventually result in higher inflation The Economic Way of Thinking (8 Guideposts to Economic Thinking) 8. The test of a theory is its ability to predict. Is economics a science? Can you form hypotheses, test them and draw hypotheses, test them and draw conclusions? conclusions? Yes, then economic thinking is scientific thinking. (8 Guideposts to Economic Thinking) In economics, the term ‘marginal’ refers to: 1. The change of difference between two alternatives 2. Man-made resources as opposed to natural Manresources 3. The satisfaction a consumer receives from a good. 4. Holding everything else constant in the analysis. 7 5/15/2008 Pitfalls to avoid in economic in thinking Pitfalls to avoid in economic in thinking • Violating the ceteris paribus condition ceteris • Just because something seems like a good -- ceteris paribus — all else equal, other things constant -- if you forget this, it can lead to erroneous conclusions. --- You know that income is growing in the US but you notice that people are buying fewer radios. How can that be? MP3 players -- If 2 things are changing at once, predicting is much more difficult. Secondary Effects of Gov’t involvement in housing: • Outlawing “Urban Sprawl” – ordinances saying you can’t • • • • • • • • • • build in certain regions or can’t build certain lot sizes Contractors begin to build giant homes where they can make more profit to get around ordinances above Fewer homes for “low income” Law to require contractors to build a certain percent of “low income” homes Not-profitable so contractors move to another city so contractors move to another city Supply of all homes decrease in this town Price of all homes increase in this town. NO affordable homes Local Gov’t must pass legislation to create public housing Price is below market value, public housing deteriorates Gov’t passes law….. Activity 1.3 • Give me an example of association is not causation besides rain dances bringing rain and umbrellas causing rain… idea doesn’t mean it is (good intentions do (good not guarantee good outcomes*). outcomes*). --- FAA regs to require all children to wear safety belts (requiring their own seat) -- AFDC benefits that increase the divorce rate * … and remember the secondary effects!! Pitfalls to avoid in economic thinking • Association is not causation – --every --every time it rains I see folks with umbrellas. Conclusion: umbrellas cause umbrellas. Conclusion: umbrellas cause rain. rain. Activity 1.4: Economic theory stresses that good intentions lead to sound economic policy. • Is this statement true or false? Explain your answer using good example other your answer using a good example other than than one we talked about in class. 8 5/15/2008 Pitfalls to avoid in economic in thinking • The Fallacy of Composition – just because something is good for one, does not make it good for all – One farmer has a bumper crop and his income rises. ALL farmers have a bumper crop…. – I leave work early to beat the rush. EVERYONE leaves work early….. End of Chapter 1 of Chapter Terms & concepts to know from Ch. 1 1. Economics is the study of: 2. Opportunity cost 3. Marginal 4. Incentives 5. Scarcity 6. Objective vs. subjective 7. Normative vs. positive 8. Statistical murder murder 9. Resources: Human, Physical, Natural 10. Utility 11. Rational ignorance 12. Ceteris paribus 13. Association vs. causation 14. Fallacy of composition 9 ...
View Full Document

Ask a homework question - tutors are online