Presentation Transcript

1. Office hours tomorrow 1:00 – 3:00
2. Economic Scarcity  We must make choices Fundamental Tool in the Economic Way of Thinking Opportunity Cost: The value of the forgone alternative. To identify the opp cost of a decision, think about: What is given up.
3. What is the opp cost of … The blooditself not the process of giving blood. The Donated Blood of College Students
4. Opp Cost of Donated Blood: value of blood in the body That’s the next best use of donated blood. That’s what’s given up. In-Season > Out of Season Late in Semester > Early in Semester Would athletes ever donate blood in-season?
5. cross country team’s response to Sept 11th “We went over the pros and cons” of giving blood and most team members decided to do so. —Senior Clay See Giving blood is a “sensitive subject,” because “red blood cells carry oxygen to your muscles, and it takes about three weeks to recover." —Senior Tommy Jager It is rational to incur great costs, if the benefits of doing so are even greater.
6. I hope you appreciate that each “walk” costs $175 of my billable time. I hope you appreciate that I’m your only friend.
7. What is the opp cost of… 2. Cadaveric kidneys from Hmong Bodies? Hmong believe that if people lose “vital organs after death, their souls cannot be reborn into new bodies” The opp cost of donated Hmong kidneys = value of donors’ future lives = a lot of $! The opp cost of donating my kidneys after my death = value of cremating them = $0
8. What is the opp cost of… 3. Milk? What’s given up to produce milk? Time of dairy farmers Resources—Labor (L), Capital (K) and Natural Resources (N) Milk 2 % ½ gallon Land Milking machines Cows ~ mix of natural resource and capital OC Milk = value of the resources used to produce it.
9. And, hence, can be used to measure opp cost Market Prices Reflect Opp Costs? Why? produced and traded in competitive markets Yes Milk Donated Blood No produced and traded outside of markets PB paid by Red Cross = 0 ≠ OCDB
10. What is the opp cost of… Milk Organic Milk CAFO Milk Milk 2 % 2 % ½ gallon Pasture-Fed Cows: Concentrated Animal Feeding Operation: Cows live in feedlots, eating corn and soybeans, and are milked three times a day. Cows graze in pastures, eating grass or hay, and are milked twice a day
11. Milk Organic Milk CAFO Milk Milk 2 % 2 % ½ gallon $3.19 half gallon $1.79 half gallon POrganic Milk ≈ 2 PCAFO Milk because pasture-based methods use twice as many cows and much more land to produce the same amount of land, i.e., Opp CostOrganic Milk ≈ 2 Opp CostCAFO Milk Hence, in competitive markets, prices reflect opportunity costs!
12. The owner of Snowville Creamery, Warren Taylor, boasts that organic milk tastes better than CAFO milk. He argues that the benefits of better tasting milk are worth the extra cost for many consumers. Does organic milk really taste better than CAFO milk? Warren Taylor
13. Positive versus Normative Economics Positive Economics: understanding how the economy works and the impact of public policies. Normative Economics: judgments about the desirability of econ events and public policies. Distinguishing Test: positive statements are provable given ideal evidence.
14. Do Motorcycle Helmets Save Lives? World Health Organization claims: “Wearing a motorcycle helmet correctly can cut the risk of death by almost 40%” Too late to put on your helmet Most motorcycle deaths are a result of head injuries. Wearing a motorcycle helmet correctly can cut the risk of death by almost 40% and the risk of severe injury by 70%. Be Part of the Solution: wear a helmet.
15. 52,930 Fatal Motorcycle Accidents, 1994-2008 FATALITY ANALYSIS REPORTING SYSTEM 40,375 crashes involved 1 rider To be included in FARS, someone had to have died. The comparison below underestimates the benefits of helmets because helmets aren’t getting credit for keeping people out of FARS. Economists call this a selection bias. 24,128 helmet 16,247 no helmet 96.2% died 94.8% died
16. 52,930 Fatal Motorcycle Accidents, 1994-2008 12,555 crashes involved 2 riders 5736 both helmets 6203 neither helmets This comparison suffers from selection bias and from differences in the conditions of the crashes. 57.4% died 57.3% died
17. 52,930 Fatal Motorcycle Accidents, 1994-2008 12,555 crashes involved 2 riders 616 crashes—only 1 rider wore helmet 5736 both helmets 6203 neither helmets 616 helmet 616 no helmet 57.4% died 57.3% died 44.0% died 69.8% died ↓ 25.8 % point = “Wearing a motorcycle helmet correctly can cut the risk of death by almost 40%” __ 25.8 37% * 100 = 69.8 Too late to put on your helmet Most motorcycle deaths are a result of head injuries. Wearing a motorcycle helmet correctly can cut the risk of death by almost 40% and the risk of severe injury by 70%. Be Part of the Solution: wear a helmet.
18. Do Motorcycle Helmets Save Lives? Positive Question Positive Question Do Mandatory Helmet Laws Save Lives? Florida repealed its universal helmet law in 2000 Motorcycle Deaths per Million People Repealed Helmet Law Florida
19. Do Motorcycle Helmets Save Lives? Positive Question Positive Question Do Mandatory Helmet Laws Save Lives? Florida repealed its universal helmet law in 2000 Motorcycle Deaths per Million People Repealed Helmet Law Florida States with no Δs in helmet laws
20. More states should enact universal helmet laws since wearing helmets save lives. Normative statement because it rests on value judgments, weighing enhanced safety against the freedom of adults to choose to engage in risky behavior.
21. US motorcycle helmet laws, 2009 Mandatory Helmet Law Teenagers Must Wear Helmets No Law