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PUMP PRIMER • What do you think of when you hear the term “economics?” (Carper, 1)

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Page 1: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

PUMP PRIMER

• What do you think of when you hear the term “economics?”

(Carper, 1)

Page 2: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

CHAPTER 1

What is Economics?

Page 3: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Objectives:

CHAPTER 1

• Define economics.• Explain why choices are necessary.• Explain how a Christian’s and an unbeliever’s perspective of economics

differ.• Differentiate between economic goods and services, nuisance goods and

free goods and services.• Contrast the concepts of intrinsic and subjective value.• Describe the opportunity benefits and opportunity costs of a purchase.• Differentiate between microeconomics and macroeconomics.• Differentiate between positive and normative economics.

Page 4: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Biblical Integration:

CHAPTER 1

• In this world of limited resources we as Christians need to make wise and godly choices. Every decision we make should be pleasing unto God.

• We should constantly be thinking of our testimony before God and mankind. (Col. 1:9-12; Phil 1:27)

Page 5: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Economics

CHAPTER 1 pp. 2-6

the common-sense science of how and why people, businesses, and governments make

the choices they do

Page 6: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Economics

CHAPTER 1 pp. 2-6

Greek

oikos = house

nomos = administration of

Page 7: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Economics is a Science.

1. Science always begins with observation.

2. Scientists use their observations as a basis to predict future cause-and-effect relationships.

• Chapter 1 • pp. 2-6

Page 8: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Economics is a Science.

3. In many cases scientists go one step further by attempting to control future events through altering important variables.

• Chapter 1 • pp. 2-6

Page 9: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

As Christians we are to be careful and wise in our choices.

CHAPTER 1 pp. 2-6

“There is a way that seems right to a man, but its end is the way of death.”

Prov. 14:12

“All the ways of a man are pure in his own eyes, but the Lord weighs the spirits.”

Prov. 16:2

Page 10: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

While man can be self-deceived in his choices – God determines the true motives (Prov. 21:2; 24:12; I Sam 16:7; I Cor. 4:4).

Even when we make the wrong choices God will use those choices for His purposes (Gen. 50:0; I King 12:15; Ps. 119:133; Jer. 10:23; Dan. 5:23-30; I Cor. 3:19, 20)

Page 11: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

CHAPTER 1 pp. 2-6

Choices are necessary because two ideas pull you in opposite directions.

It is impossible for you to satisfy both.

Page 12: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Insatiability

• Everyone has unlimited wants.

Scarcity

• Everything is limited in quantity.

CHAPTER 1 pp. 2-6

Page 13: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

There are two big economic questions:• “How choices determine what,

how, and for whom goods and services get produced?

Page 14: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

What?

What goods and services get produced and in what quantities?

Page 15: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

How?

How are goods and services produced?

Page 16: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

For Whom?

For Whom are the various goods and services produced?

Page 17: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Classification of Wants

• goods = tangible things with measurable life spans

• Chapter 1 • pp. 7-12

newspaper

VCR/CD Players

food

Page 18: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Classification of Wants

• services = intangible items

• Chapter 1 • pp. 7-12

accountantcustomer service

librarian

Page 19: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Classification of Cost

• economic goods/services = positive cost

• Chapter 1 • pp. 7-12

Page 20: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Classification of Cost

• nuisance goods/services = negative cost

• Chapter 1 • pp. 7-12

Such as, toxic waste, garbage, and sewage,

unsightly billboards constitute nuisance services.

Page 21: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Some firms make significant profits by taking nuisance goods and turn them into economic goods – a process called recycling.

• Chapter 1 • pp. 7-12

Page 22: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Classification of Cost

• free goods/services = zero cost

• Chapter 1 • pp. 7-12

Page 23: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

N C E E C A P S T O N E : E X E M P L A RY L E S S O N S F O R H I G H S C H O O L

E C O N O M I C SN E W Y O R K , N Y.

TO CHOOSE OR NOT TO CHOOSE? THAT IS THE QUESTION

ACTIVITY 1

Page 24: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

OBJECTIVES

• Identify alternatives in various choice situations

• Identify costs and benefits associated with various alternatives

• Make economizing choices, given competing alternatives.

Page 25: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

INTRODUCTION

• Productive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.

• Effective decisions making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something few choices are all-or-nothing decisions.

Page 26: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

The purpose of this lesson is to help you develop the ability to solve economic problems.

To do this, you need to learn some basic assumptions of economics.

One assumption has to do with whether or not people have choices.

Page 27: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• People often think they have no choice.• Example:

• Todd recently purchased his own car on credit. He works at a part-time job at an auto-wrecking firm to earn the money he needs to make payments on his new car. Lately, his work in school has declined. When his teacher asked him if he was studying for the tests, he replied, “Not really, I’d like to study more, but I have no choice. I’ve got to keep working to pay off my car loan.”

Page 28: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• Did Todd have alternatives in his situation?

• Have you ever felt like Todd, that there really wasn’t a choice?

• Read the case in your Activity handout.

Page 29: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• What was Ashley’s problem?

• What alternatives did Ashley have?

• What were the costs of each alternative?

• What were the benefits?

Page 30: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1 LESSON

• Break-up into groups of no more than three students.

• Read the two cases and answer the questions together.

• You will need one individual from your group to be your spokesperson.

Page 31: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Keep the price the same.

Alternatives: Possible Cost:

Reduce profits, maybe lose money and go out of business.

Keep prices and profits about the same.

Possible Benefit:

Keep the price the same by discontinuing some of the sandwiches’ special features.Discontinue selling sandwiches and introduce less expensive lunches.

Raise prices of sandwiches

Keep prices the same and customers happy.

Keep profits about the same.

Keep profits about the same.

Customers might not buy as many sandwiches – reduced sales.

Customers might not like the new product, maybe lose sales.

Customers might buy less, maybe lose money.

Page 32: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

EXAMPLE 2

Produce a different product.

Alternatives: Possible Cost:

Difficult to transform the plant and equipment.

Increase sales

Possible Benefit:

Produce airbags and GPS or a foreign producer.

Close the plant and go bankrupt

Restrict imports

Keep profits about the same.

No more worries about competing with foreign producers.

Increased sales and jobs for his workers.

Difficult to get a contract.

Lose money.

Employees out of work.

Few obvious costs to this owner and workers but increased costs for others

Page 33: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

CHAPTER 1

What is Economics?

Part Two

Page 34: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

PUMP PRIMER

• Using your textbook, define insatiability and scarcity.

(Carper, 1)

Page 35: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

A CHOICE TO MAKE

NCEE CHOICES AND CHANGES IN LIFE, SCHOOL, AND WORK

NEW YORK, NY.

Page 36: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

OBJECTIVES• Generate several alternative courses of action to solve a problem.

• Understand that they have alternatives and choose from among them.

• Explain the meaning of scarcity and opportunity cost.

Page 37: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1• Read the first case and answer the questions

as a group.• Scarcity

• Is the condition of not being able to have everything we want.

• Apply this definition to Tony’s situation• What is scarce?

• Tony’s time.

Page 38: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• Whenever our wants exceed our ability to satisfy them we have scarcity.

• Society faces scarcity in allocating its resources to produce goods and services.

• Individuals face scarcity in budgeting their money and time.

• In each case we have to make decisions.

Page 39: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• Value• Is something a person considers important

which is supported by a set of beliefs.• In Tony’s situation, how important is it for him

to go to the movies?• Our values and beliefs influence our decisions.• What values influenced your decision in

discussing Tony’s case?

Page 40: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 1

• Situations occur in life that require decision making. Very often, those situations are related to scarcity—that is, our wants are greater than our resources.

• Usually, there is more than one alternative in a situation from which to choose, just as there is more than one value to guide our decisions.

• Individuals have the power to make choices in scarcity situations, and our values influence our choice of which alternative is best.

Page 41: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

ACTIVITY 2

• Now read Angela’s Problem and answer the questions as a group.• What advice would you give Angela?• What would Angela be giving up in each

case?• Her opportunity cost –the highest valued

alternative that must be given up when another option is chosen.

Page 42: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

OBJECTIVES:• Contrast the concepts of intrinsic value and

subjective value.• Describe the opportunity benefits and costs of a

purchase.• Differentiate between microeconomics and

macroeconomics.• Differentiate between positive economics and

normative economics.

Page 43: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

economic value

CHAPTER 1 pp. 7-12

value of a good or service in dollars

Page 44: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

diamond-water paradox

CHAPTER 1 pp. 7-12

What has more economic value: a handful of diamonds or a single glass of water?

Page 45: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

CHAPTER 1 p. 8

• Put the riddle to rest.• The value of an object is not

determined by anything having to do with the good, but rather by the subject, the person buying the good or service.

• Subjective Value

CARL MENGER

Page 46: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Subjective Value

CHAPTER 1 pp. 7-12

• An object’s usefulness to the buyer that determines its worth

Page 47: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Principles of Economics (1871)• argued that there is not just one economic

value for every good

• Chapter 1 • pp. 7-12

Page 48: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

intrinsic value

• based on the nature of the product

subjective value

• determined by the usefulness to the buyer

CHAPTER 1 pp. 7-12

Page 49: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

opportunity benefit

CHAPTER 1 pp. 7-12

the satisfaction you receive from the choice you make

Page 50: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

opportunity cost

CHAPTER 1 pp. 7-12

the satisfaction you give up or the regret you experience for not choosing differently

Page 51: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Decision Equation

• opportunity benefit ─ opportunity cost = decision

• satisfaction received ─ satisfaction regretted = decision

• Chapter 1 • pp. 7-12

Page 52: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

util

CHAPTER 1 pp. 7-12

an economic term for an imaginary unit of satisfaction

Page 53: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

hidden costs

CHAPTER 1 pp. 7-12

certain amounts of regret in every decision

Page 54: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Shoes = Opportunity Benefit or Satisfaction = 9 utils (YOO till)

• Steak Dinner = Opportunity Cost or Regret = 10 utils

Purchased shoes over dinner: 9 – 10 = 1 negative utilPurchased dinner over shoes: 10 – 9 = 1 positive util

(Carper, 6)

Utils of Satisfaction!

Page 55: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Scope of Choices

• Microeconomics: choices made by individual units

• Macroeconomics: large-scale economic choices and issues

• Chapter 1 • pp. 12-14

Page 56: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

SCARCITY AND ABUNDANCE

U N I T 1

L E S S O N 2

by Capstone: Exemplary Lessons for High School

Economics. National Council on Economic Education, New York, NY

Page 57: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Objectives:

• Identify two definitions of term scarcity.• Select examples consistent with the two

definitions.• Identify conditions that might cause people

to treat scarce resources as if they were not scarce.

Page 58: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Introduction:

• Economists insist that scarcity exists and forces people to make choices about the use of resources.

• This activity is to clarify the concept of scarcity and to demonstrate how that concept can be used in analyzing human behavior.

Page 59: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Definitions:

1. Involves a relative relationship in which scarcity depends on how much something is available relative to how much is wanted. (If a small amount of something is available, that something is scarce.)

2. The importance of more than one valuable use. (Goods are scarce if choosing one valuable use of them means giving up another valuable use.)

Page 60: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Activity:

• Working with one other person, read each statement and then decide which examples do and do not illustrate the concept of scarcity.

Page 61: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Answers:A. Not scarce. No alternative valuable use.

B. Scarce. The books may be read or they may be recycled. Two valuable uses.

C. Scarce. The one book could be used by five different people; it has valuable alternative uses.

D. Not scarce. Same number relationship, but the information in the book is not valuable to the five students.

E. Scarce. Petroleum has many valuable uses in Japan.

F. Scarce. Petroleum has many valuable uses in Saudi Arabia, and it can be sold to other people in other countries. Several valuable uses.

Page 62: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Activity 2A. Scarce resources treated as not scarce. The water has other valuable uses,

such as irrigation or sewer treatment.

B. Scarce resource treated as not scarce. The food could feed hungry people; it could be stored for future consumption; or it could be used as compost to improve soil conditions in gardens

C. Scarce. A difficult example – oxygen in the air around us is not scarce. People routinely acquire it at no cost. There is more of it than individuals can use. But oxygen underwater is scarce, as are the resources needed to capture oxygen and store it in containers for underwater use.

D. Not Scarce. The pebble have no valuable alternative use. The resources necessary to move the pebbles [time and effort, for example] are scarce. They could be used for other valuable purposes.

Page 63: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

THE ECONOMIC WAY OF THINKING

M I C R O U N I T 1

L E S S O N 1

by Advanced Placement Economics Teacher Resource Manual. National Council on Economic Education,

New York, N.Y.

Page 64: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

OBJECTIVES• Define opportunity cost

• Define economic way of thinking

• Apply scarcity concepts to variety of economic and noneconomic situations.

Page 65: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

INTRODUCTION

• Economics has thousand of details that can sometimes be confusing.

• This lesson will acquaints you with some basic economic concepts and methodology.

Page 66: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Everything has a cost.

“there is no such thing as a free lunch”

- every action cots someone time, effort or lost opportunities to do something else.

Opportunity cost is the real cost of an item, including what must be given up to obtain it

– people incur costs when making decisions, even when people appear to pay nothing.

Page 67: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• People choose for good reasons. People always face choices, however, if people have different

values, they may make different choices. Most of Economics concerns business and government

decision making. (Remember, these decisions are made by people.)

Normative economics “makes prescriptive statements about how the economy should work” (Krugman 7)

Positive economics “describes the way economy actually works” (Krugman 7)

Page 68: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Incentives matter. Many believe economics is all about incentives.

Supply and demand is about incentives Theory of the firm and factor markets are about incentives. Government decision making is about incentives

Incentives change, people’s behavior changes in predictable ways.

Page 69: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• People create economic systems to influence choices and incentives. Cooperation among people is governed by written and unwritten

rules that are the core of an economic system. As rules change, incentives and behavior change. The success of market systems and the failure of communism are

rooted in incentives.

Page 70: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• People gain from voluntary trade.• People will trade when they believe the trade makes them

better off.• Always remember throughout this course that is people, not

countries, that trade and make decisions.• Economics is all about trade.

Page 71: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Economic thinking is marginal thinking.• Marginal choices involve the effects of additions and

subtractions from current conditions.• A great deal of this course is about marginal costs and

benefits and will be discussed in every unit.

Page 72: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• The value of a good or service is affected by people’s choices.o Goods and services do not have intrinsic value; their

value is determine by the preferences of buyers and sellers.o Intrinsic Value is the “value of a company or an asset

based on an underlying perception of the value.” (“Intrinsic Value”)

o Because of this, trading moves goods and services to higher-valued uses. This is why trading is so important.

o The price of a good or service is set by supply and demand.

Page 73: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• Economic actions create secondary effects.• Good economics involves analyzing secondary effects.

• Example: rent controls make apartments more affordable to some consumers.

• Controls also make it less profitable to build and maintain apartments. • The secondary effect is a shortage of apartments and

houses for rent.

Page 74: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

• The test of a theory is its ability to predict correctly.

You will discuss many theories in Economics – all of these theories have simplifying assumptions

If the theory correctly predicts the consequences of actions, it is a good theory.

Nothing is “good in theory but bad in practice.”

Page 75: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

DO ACTIVITY 1 – DO YOU THINK LIKE AN ECONOMIST?1. Because it is desirable, sunshine is scarce. T F

Sunshine isn’t scarce because it isn’t limited; it is a free good.

2. Because it is limited, polio is scarce. TF

Polio isn’t scarce because it isn’t desirable.

Page 76: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

3. Because water covers three-fourths of the earth surface and is renewable, it cannot be considered scarce. T F

Scarcity is a relative, not an absolute, concept. Because resources are scarce and wants are unlimited, almost everything to scarce. If you pay an opportunity cost to use a good or service, it is scarce. If you pay a positive price for a good or service, it is scarce. Water may cover three-fourths of the earth but we pay an opportunity cost and a positive price for clean water everywhere. Of course, water may be scarce in the desert than in the wetlands. Only a government can actually make water cheaper in a desert.

Page 77: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

4. The main cost of going to college is tuition, room and board. T F

An important opportunity cost of going to college is lost earnings. If you could earn $20,000 a year by working, you will sacrifice $80,000 during four years of college.

Page 78: PUMP PRIMER What do you think of when you hear the term “economics?”What do you think of when you hear the term “economics?” (Carper, 1)

Both Q-5 & Q-6 deal with the law of supply and demand. People tend to buy more of something when the price is lower and less when the price is higher.

Price includes money as well as such things as time, aggravation, inconvenience and moral guilt. Sellers will try to sell more of something if the price is higher and less of it if the price is lower. This conflict resolved through the market.

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5. If mass transportation fares are raised, almost everyone will take the trains anyway. T F

It is false because, if all other things are equal, less mass transportation will be purchased if the price is higher. The price could be increased in terms of dollars, inconvenient schedules, crime and filthy cars. The demand curve for transportation would have to be perfectly inelastic, or vertical, for the answer to this question to be True. (We will discuss this issue later in the semester.)

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6. You get what you pay for. TF

The price of something depends on supply and demand, not on usefulness or on some criterion of quality. Water is more useful than diamonds, but it has a lower price. What you pay for a good or service depends on the market price determined by supply and demand.

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7. If someone makes an economic gain, someone else loses. T F

8. If one nation produces everything better than another nation, there is no economic reason for these two nations to trade. T F

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Both Q-7 and Q-8 concern gains from trade. When people trade voluntarily, both parties expect to gain, or they wouldn’t trade.

One reason for this gain is the law of comparative advantage if one person does legal work better than another and if a second person word-processes documents better than the first, they would gain by trade.

But would a lawyer who is the fastest word processor in town hire a secretary? Yes, because of comparative advantage: Each person would specialize in what he or she does comparatively better.

An hour spent word processing would is an hour not spent in legal work, and the opportunity cost for the lawyer would be very high. The lawyer will specialize in legal work and the secretary in word processing. The total output of goods and services will increase. This concept can also be applied to countries.

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9. A nonregulated monopoly tends to charge the highest possible price. T F

A monopoly charges a higher price than a competitive market price, but the monopolist cannot repeal the law of demand. If the price is too high, the monopolist might sell nothing. A monopolist will try to establish a price at a point that will make the greatest profit. This price is higher than a competitive price and will result in less production.

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10. A business owner’s decision to show more care for consumers is a decision to accept lower of profits. T

FProfits are an incentive for business to succeed. A business that doesn’t care about its customers will not make high profits. As Adam Smith (1723-1790) said, “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard for their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

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CHAPTER 1

Blade, Robin, and Michael Parkin. Foundations of Economics: Instructor’s Manual. 2nd ed. Boston: Pearson Education, Inc., 2004.

Carper, Alan. Economics for Christian Schools. Greenville: Bob Jones University Press, 1998.

“Intrinsic Value”. Investopedia.com. Web. 3 Jan 2009. http://investopedia.com/terms/i/intrinsicvalue.asp

Krugman, Paul and Robin Wells. Macroeconomics. New York, NY: Worth

Publishers. 2006.

"The New King James Version." Logos Bible Software. CD_ROM. ed. 2004.

WORKS CITED


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