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Chapter 1 Section 3:
Transcript of Chapter 1 Section 3:
Politics and Economics
It is important to know the economic position of the candidate you may vote for. Most of today's political problems have important economic aspects.
Thinking Like an Economist
An economic model is a simplified picture of what something is like or how something works. Models are based on assumptions, or things that we take for granted as true. If an economic model results in a prediction that turns out to be right, the model can be used again. If it is wrong, the model can be changed to make better predictions the next time.
Trade-Offs and Opportunity Cost
We live in a world where nothing is free. Everything we do costs money or time. There are alternatives for everything.
Chapter 1 Section 3: Economic Choices and Decision Making
Economist think of cost different than people. People think of dollars and cents and economist think of opportunity cost. Opportunity cost is the next best alternative use of money, time, or resources when one choice is made rather than another. Suppose you spend $5000.00 on a used car. The opportunity cost would be an apartment, vacation, or other items than you could have purchased instead of the used car. Even time has an opportunity cost. The opportunity cost of going to school, for example, is the better places that you could be at the same time.
Most economic decisions can be made by using cost-benefit analysis which is a way of thinking about a problem that compares the cost of an action to the benefits received.
The first we must recognize is that people face trade offs. Trade offs are alternative choices. Constructing a grid helps when facing a trade off. Many alternatives are appealing but they all have advantages and disadvantages. Many items even require additional costs, which is important to look for. The reason a grid helps make a trade off is because you list all the alternatives and several criteria. Then you evaluate your alternatives by yes or no.
The study of economics does more than explain how people deal with scarcity. Economics also includes the study of how things are made, bought, sold and used. How incomes are earned and spent, how jobs are created, and how the economy works on a daily basis.
Topics and Issues
Topics we will learn about
supply and demand
the price system
the economic incentives
the role of business
Give an example of trade-offs
What are opportunity cost
What is an Economic Model
Name 3 topics we will learn this semester
What is cost-benefit analysis
the business cycle
When making decisions, it is important to take small, incrimental steps toward the final goal. This is especially valuable whenever we are unsure of the total cost involved. If the cost turns out to be larger than anticipated, then the resulting decision can be reversed, without too much being lost.