Explain why or why not critical thinking 5 if price

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Unformatted text preview: ited resources to satisfy their unlimited wants. without paying anyone any money. 4. Is the opportunity cost of attending high school the same for all high school students? Explain why or why not. Critical Thinking 5. If price were not used as a rationing device, would something else have to be used? If so, what might it be? Suppose that a local movie theatre decided to use something other than price to determine who got to see the latest movies. Devise a rationing device that would be fair to both moviegoers and theater owners. Applying Economic Concepts 6. Gallagher is planning on going to college in a few months. The tuition is $10,000 a year. Assuming that Gallagher goes to college for four years, is the opportunity cost of his attending college $40,000? Why or why not? 7. Explain how a PPF can be used to illustrate both choice and opportunity cost. 01 (002-029) EMC Chap 01 11/17/05 4:03 PM Page 13 Focus Questions The Economic Way of Thinking How do costs and benefits affect decisions? What are incentives and why are they important? What is the difference between microeconomics and macroeconomics? Why do economists develop theories? Key Terms marginal incentive microeconomics macroeconomics theory Economic Thinking Economists have a particular way of looking at the world. Just as a pair of sunglasses can change how you view your surroundings (things look darker), so can the economic way of thinking. When economists put on their “glasses,” they see choices and opportunity costs, as you learned in the last section. You will recall, the economist saw the surfer student being absent from class because, on the day the waves were high, the opportunity cost of attending class was higher than on other days. In other words, besides seeing a student, a surfer, the surfboard, the beach and the waves, the economist “saw” (in his mind’s eye) opportunity cost too. One of the objectives of this book is to get you to understand and use the economist’s way of thinking. It is not the only way to look at the world. It is, however, one way of looking at the world that often does help you understand the world you live in. This new way of thinking will also, in many cases, help you get more of what you want in life. Thinking in Terms of Costs and Benefits According to an economist, almost everything we do involves costs (negatives, disadvantages) and benefits (positives, advantages). There are costs and benefits to learning economics, eating a hamburger, driving a car, asking a person out on a date, sleeping an extra hour, taking a vacation, or talking on the telephone. Making Cost-Benefit Decisions According to the economist, a person will want to do a particular activity only if the benefits are greater than the costs. A person will buy a computer only if the benefits of buying the computer are expected to be greater than the costs of buying it. If the costs are perceived to be greater than the benefits, then the person will not purchase the computer. Suppose a student graduates from high school and decides to go on to college. At college, she decides to major in psychology. What do we know about her choice of a Section 2 The Economic Way of Thinking 13 01 (002-029) EMC Chap 01 11/17/05 4:03 PM Page 14 people make decisions, they do not think of the total costs and benefits involved in the decision. Instead, they think about the additional, or marginal, costs and benefits. conomists think in terms of both benefits and costs. For example, attending college has both benefits and costs. Usually, the benefits far exceed the costs. To learn more about colleges, go to the following Web site: www.emcp.net/college. Once at the site, click on “College Directory” and then “United States.” The next screen you see will list the 50 states and Washington, D.C. Click on the state in which you think you may want to attend college. From there, click on the names of a few colleges, and read about them. After spending some time looking at different colleges, identify what you think are the benefits and costs of attending college. Finally, do you think the benefits are greater than, less than, or equal to the costs? E major? According to the economist, we know that when she made the decision to major in psychology, she thought that the benefits to her of majoring in psychology would be greater than the costs. When economists study a problem, weighing the costs and the benefits, they refer to this process as a cost-benefit analysis. John has been studying four hours for his English test tomorrow. It’s now 10:30 at night. John considers studying one more hour. The benefits to studying another hour might be a higher grade on the test. The cost of studying another hour is one less hour of sleep, which could adversely affect his ability to concentrate during the test (which, in turn, could adversely affect his grade). He thinks the costs of studying an additional hour are greater than the benefits, so he goes to bed. EXAMPLE: Thinking at the Margin marginal In economics, marginal means additi...
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This document was uploaded on 01/16/2014.

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