FEC #1- Scarcity and choice

What I need to live:

• Food

• Water

• Air

• Shelter

• Jesus

• Sleep

What I want to have:

• A job I love

• To be happy with my life

• Get married

• Have kidsScarcity  everything and everywhere is limited

• Resources:

  • Land- anything on the land or in the land that has value; examples: ON: trees, crops, livestock, building; IN: water, oil, gold

  • Labor- workers and their level of education and experience; examples: teacher with no experience not as good

  • Capital- any good or service used to produce another good or service; examples: car with all parts (lots of capital)

  • Entrepreneurial ability (sometimes called managerial ability)- ability to take land, labor, and capital and create a good or service that people want to buy; examples: good management

    Goal of all Economics- limited resources with unlimited wants and needs- goal is to stretch out resources to meet as many wants and needs as possible

    • Forces us to MAKE CHOICES

    FEC #2- Rationality

    • Economics is based on the fact that our choices are rational and, therefore, meet our utility

      • Utility- your happiness or satisfaction

      • Rational self-interest– your personal utility (happiness) your rational self-interest is different than anyone else’s bc based on your own personal thought process

      • How do you know if something is rational?

    • Cost Benefit Analysis- a way to illustrate a choice or decision

      • A cost is a con; the benefit is a pro

      • Weigh the costs and benefits

      • If the benefits outweigh the costs- the choice is rational

    • Microeconomics- decision-making by individuals, households, and businesses (examples: pay bills, family vacation)

    • Macroeconomics- decision-making by governments or countries (how much taxes, should we drill for oil)

    FEC #3- Trade-offs and Opportunity Costs

    • List anything you've ever gotten for free

      • What makes these things free? No cost

    • Famous Economics Saying: “There is no such thing as a free lunch.”

      • Nothing is free.

    • Costs are more than just money- time and energy; if you give something up it could be a cost (it can be anything)

    • Trade off- the choice you did not choose (go home to take a nap instead of working out)

    • Opportunity cost- benefits of the choice you didn’t make; the benefits become costs (go to UTC instead of UTK lose the choice of an SEC school)

    • Cost Benefit Analysis

      • Chick Fil A

        • Costs: chicken minis stop at 10:30, closed on Sundays, limited options

        • Benefits: not far from home, mostly quick, good fries

        • trade-off - benefits now become opportunity costs

      • Boathouse

        • Costs: pricey, downtown, time, gas, look nicer

        • Benefits: love the food, see the lake, good atmosphere

        • Choice

    FEC #4- Incentives Matter

    • All economic theory is based on the fact that incentives influence human behavior in a predictable manner.

    • Incentive- pushing you to make a choice: any reason you do something

      • Intrinsic v. Extrinsic- intrinsic=inside; extrinsic= you are being influenced by something outside of your own self-interest

      • What are some examples of each?

      • What about incentives that influenced your CBA?

    • Types of Incentives

      • Positive incentive- rewards you get, added bonuses, (ex: sign contract and get an added bonus; buy one get one free)

      • Negative incentive- consequences or punishments

      • Consumer incentive- buyers and consumers (most effective is sales); modifying consumer behavior to consume more

      • Producer incentive- produce (business owners)-modify producer behavior so they produce more (moving out to Ooltewah to meet people's needs)

    • If incentives change, human behavior will change, but it will also work to an equilibrium (balance)

      • For example: consumers and producers both win when things are on sale: producers get rid of products, and consumers get more product

    • Problems with Incentives- people learn how to work the system to get its best benefit; not perfect