AE Lesson 1 Week 1

8/3/2019 AE Lesson 1 Week 1

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Introduction to Economics

By Esther Tiemes


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Lecturer Info

Email: [email protected]

Twitter: twitter.com/econpopculture

Blog: learningeconomics.tumble.comPhone: (work) 5889946 ext.236


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Course Info

Course code: AE

Name: Introduction to economics

Credits: 4 ECTs (4*28hours) Literature: Selected Chapters of

Principles of Economics (see syllabus)+ Handouts Slides

Ua.edu20.org: Course 53079


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Study load: 4 ECTs = 112 hours

Contact hours: 42 Home study:

Study Literature 2hrs per week 28

Homework 1 hr per week 14 Tests and Exams

Review Literature 12 Final Exam 2

Re-Exam 2 Voortgangstoets 1


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Grading

100% exam (MC and Open Question)

0.5 Bonuspoint to be earned by

At least 11 out of 14 classed attendedAND

Active Participation in class AND

Homework has been made

Voortgangstoetsbonus


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Give me one reason to stay here- and I'll turn right back around


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What do Economists do?

Economist study the choices

that `make that result fromscarcity


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Scarcity

The condition that we have limitedresources and therefore cannot fulfillall our needs and wants.

A scarce resource is a resource ofwhich we do not have enough to fulfillall our needs and wants


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PEOPLE FACE TRADE-OFFSPrinciple #1


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THE COST OF SOMETHING ISWHAT YOU GIVE UP TO GET ITPrinciple #2


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Example1: Field of Dreams

What is the trade-off that the maincharacter in this movie faces/faced?

Due to which scarcity does he face thistrade-off

Whats the opportunity cost of hischoice?
http://youtu.be/HQv0WWhoZnIhttp://youtu.be/HQv0WWhoZnI


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Example 2:

Which person below thinks like an economist? Why? If we build a dam,

well have better flood

control and cheaperelectricity. If we dont,then well experienceoccasional flooding,and electricity will be

more expensive.

If we build the dam,well have flood control

and cheaperelectricity. But the$100 million to buildthe dam could be usedinstead to build two

new high schools.


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Example 3

Suppose a woman is walking alongdown the street when she sees a dimeon the sidewalk. Should she pick it up?


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But suppose she isMadonna and she'shurrying to a

recording studiowhere a symphonyorchestra is waiting toperform with her.

Should she pick it up?Why/why not?


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Example 4

Ernesto is trying to decide whetherto attend college and has determinedthe money cost of attending college for

one year.


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Money Cost of a Year of College Tuition: $1,000

Books and school supplies: 2,000Room and board: 10,000Transportation: 1,000Miscellaneous expenses: 3,000

__________________________________ Total money cost: $17,000


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Calculating the OpportunityCost

1. What alternative opportunities are there?Working at drive-in, working at MacDonalds,become unemployed

2. Which is the best of these alternativeopportunities? Working at the drive-in

3. What would he gain if he selected my bestalternative opportunity instead of the choicehes considering? If Ernesto worked, he

wouldnt have to pay for tuition, books, orschool supplies. He also would earn$10,000 during the year that she worked.


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Opportunity Cost (of going to college)

Tuition: $ 1,000Books and school supplies: 2,000Foregone wages from working: 10,000_____________________________________

Total opportunity cost: $13,000

Benefit of going to college: higher futureearnings, new friends, and a betterunderstanding of our world


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RATIONAL PEOPLE THINK ATTHE MARGINPrinciple #3


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Rational People

People who systematically andpurposefully do the best theycan to achieve their objectives


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Marginal Changes

Small incremental adjustmentsto a plan of action


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Sunk Costs

Costs that have been made inthe past and that cannot be

recuperated


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Example 1: Bad Movie

Q: Imagine you pay $10 to go to a movie. Youthen go to the movie, but it turns out that the

jokes are very boring and you are notenjoying yourself. You cannot get a refund of

the $10. Would you:

A. stay and watch the movie till the end, becauseyou have already paid $10? Or

B. would you leave the theater and go get some

ice-cream?


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Example 2: Business Investment

$20 million has been spent on building apower plant; the value at present is zerobecause it is incomplete (and no sale or

recovery is feasible). The plant can becompleted for an additional $10 million,or abandoned and a different but equallyvaluable facility built for $5 million.

What would a rational economic agent doaccording to an economist?


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Example 3: Seinfeld


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Questions

What would you have done if you wereElaine.

Would an economist call Elaine rational?

What are the sunk costs in this story? What are the opportunity cost of eating

the 24th sandwich?

What are the marginal costs and what arethe marginal benefits of eating the 24thsandwich


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PEOPLE RESPOND TOINCENTIVESPrinciple #4


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Incentive

Something that induces aperson to act


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Example: Money on the floor


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Give me one Reason

Questions:

What is so scarce that it forces her to make adecision

What do you think the (marginal) opportunitycosts are of staying for this person?

What do you think the marginal benefits areof her staying?

Do you think sunk costs play an importantfactor in her decision-making?

What do incentives have to do with this song?


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Field of Dreams

What is the scarce resource in this scene? What is the decision he has made? What are according to you the marginal cost of his

decision to turn the cornfield into a baseball field. What are according to you the marginal cost of his

decision to turn the cornfield into a baseball field? It appears that the marginal benefits are larger than the

marginal costs of building a baseball field according tothe main character in the movie. Explain why.

What are the factors of production used to finish the

field?


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Brown Bag Economics

http://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economics

Do you agree with the writersanalysis?
http://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economicshttp://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economicshttp://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economicshttp://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economicshttp://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economicshttp://marketplace.publicradio.org/display/web/2006/06/05/brown_bag_economics


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RECAP

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