Micro v. Macro

Microeconomics-The Study of economics at the level of the individual. Macroeconomics- The study of economics as a whole.

Example Micro takes a look at the activity of the

individual consumer, whereas macro looks at the whole system.

To choose or not to choose? That is not the question?Capstone Unit 1 lesson 4

People often think they have no choice. 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.”

Maybe the cash for clunker deal might have helped out Todd

Did Todd have alternatives in his situation? What Alternatives does Todd have in addition to reducing his study time?

Activity 1 What was Ashley’s problem? What alternatives did Ashley have? What wee the costs of each alternative? What were the benefits? Complete the grids in activity 1

Rules influence economic behaviorCapstone Unit 1 lesson 5

Visual 1 ..\Capstone\Capstone Visuals\capstone_lesson5_vi

sual.pdf

Quiz time Do your very best on the quiz Make no marks on the quiz Mark all answers on Activity 2 First Answer sheet Finish in five minutes

We will correct quizzes once everyone is done

Quiz Answers

1-a 2-d 3-c 4-1 5-b 6-c 7-b 8-c 9-b 10-d

Grading

Add up number of correct answers and place on top of page

Assign grades as follows Visual 2

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Record the grade on the answer sheets How well did we do? A___ B___ C___ D___ F___

How many of you usually try to earn as high a grade as possible? Why?

Why did so many of you end up with low grades on the quiz?

What is an incentive? What incentive influenced the choices

you made is selecting answers to the quiz questions?

If you had known before you took the quiz that the grading scale was inverted, how many quiz questions would you have tried to answer correctly? Why?

Grades from the quiz you just took will not count. Instead you will be permitted to take the same quiz a

second time in order to improve your grades. Visual 4

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NOTE: ALL STUDENTS EARNING A GRADE OF A WILL BE GIVEN A WRITING ASSIGNNMENT WHICH WILL BE DUE TOMORROW. OTHER STUDENTS MAY USE THE REST OF THE PERIOD FOR READING OR WORKING QUIETLY ON ANYTHING OF THEIR CHOICE.

Use the same quiz they took for Activity 1 Make no marks on the quiz Mark all answers on Activity 3 Second Answer Sheet Finish in five minutes.

Quiz Answers 1-a 2-d 3-c 4-1 5-b 6-c 7-b 8-c 9-b 10-d Grade your paper using this scale

Visual 4 ..\Capstone\Capstone Visuals\capstone_lesson5_visual.

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How well did we do?

A___ B___ C___ D___ F___

Why didn’t everyone earn a grade of A, since all of you knew what the correct answers were before you took the quiz?

How many students tried to miss at least one question on the quiz? Why?

What incentive influenced the choices you made about selecting answers to the quiz questions this time?

What caused the incentive change?

Rules Incentives Choices

Rules influence incentives, and incentives influence choices

All countries establish rules for their economies, and these rules influence behavior. Some rules encourage people to use resources and exchange goods and services. Some rules discourage people from using resources and exchanging goods and services.

Rules that governments impose can get extensive

Activity 4 Do the rules encourage or discourage economic activity. A. D This policy prohibited 50 percent of the population from

providing goods and services to their people (except family members) In that respect it reduced the society’s capacity to provide goods and services.

B. E This policy encouraged economic behavior, but it was wasteful. The managers made many small nails which were not useful to people who wanted nails in other sizes.

C. E The cost of saving endangered species in this manner is the value of other economic activity, associated with other uses of water, prohibited by the rule.

D. D This religious belief obviously discourages the use of cows as a food source. It has also encouraged people in India to concentrate on providing alternative food sources.

E. E The high value attached to eating beef encourages the use of cows as a food source. Large ranches produce cows in large numbers. Vegetarians observe that the emphasis on beef ranching discourages efforts to develop other, non-meat food sources in Argentina.

Opportunity Cost The highest valued alternative that must be

forgone when a choice is made College is a perfect example. Say you go to college for four years. We could

figure out the dollar amount of the opportunity cost for going to college.

If you did not go to college you probably would go out and get a job. The job you get we will say will pay $20,000 a year. So you take that X 4 years and you get $80,000. Plus you must pay tuition and other expenses for 4 years. So say they amount to $12,000 a year X 4 years = $48,000. You add the two and you get $128,000 opportunity cost to go to college and pursue a better career.

College costs can add up, both financial and other

Tradeoff

In decisions that require a choice we choose what we think will benefit us the most with the information we have available which is called rational self-interest. When we choose we often choose one thing over another. This is called a tradeoff.

Tradeoff- The giving up of one good or activity in order to obtain some other good or activity

Money can be a tradeoff for an education

Marginal

Marginal cost- additional cost Marginal Benefit- additional benefit

Efficiency

The case in which a given level of inputs is used to produce the maximum output is produced at minimum cost

This might be how some people save time

Trade

If countries of the world specialize and trade their goods to each other each country will end up with more than if they all tried to produce their own of everything.

What are some things the US trades for and trades with other countries?

Oil, Rice, Coffee, Etc. Food, Steel, Coal Etc.

Babe Ruth was Traded to finance a play

Comparative Advantage

When we talk about trade, we are always looking to see who has the best suited environment to produce a good or service. In economics if a country is better suited to produce a good than another country, we give a name to the type of situation created.

Comparative Advantage – The ability to produce a good or service at a lower opportunity cost than someone else

Wal Mart has comparative advantage in lots of different areas

Example: If you and your friend are putting together a band or group in music. You both look at your talents. You realize that you are better at marketing and booking gigs and your fried is really better at the musical aspect of the group. You have a comparative advantage in the business realm of the band whereas your friend has a comparative advantage in the musical realm. You would use your skills and trade (or partner) with your friend to capture their musical abilities.

Maybe playing in front of large crowds isn’t your thing

Division of Labor

When you think of specialization, another concept in the business world comes to mind. There was an innovation in the production process that happened early in the 20th century.

Does anyone know what production innovation helped change the consumer market and turn it into a place where things can be produced more easily?

Division of Labor- The segregation of a resource into different specific tasks for example, one automobile worker puts on bumpers, another doors and so on

Henry Ford’s Assembly line