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Decisions, Decisions

Decisions, Decisions. Ms. Frey Mrs. Smith Mr. Westerfeld Herron High School. People make economic choices all the time. Why do we make decisions??? Scarcity A situation where there aren’t enough resources to meet wants

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Decisions, Decisions

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  1. Decisions, Decisions Ms. Frey Mrs. Smith Mr. Westerfeld Herron High School

  2. People make economic choices all the time. Why do we make decisions??? Scarcity • A situation where there aren’t enough resources to meet wants Scarcity affects what goods (things that can be purchased) or services (a person that works for another) can be provided.

  3. Economics studies how people chooseto use scare resources to satisfy their wants.

  4. Microeconomics – study of economic behavior and decision-making by smaller units of the economy (such as individuals, one household, one firm, government agencies, etc.)

  5. People make economic choices all the time. • Three factors determine someone’s decision to do or buy something • Positive incentives (benefits/ rewards) • Cleaning your room  go to a movie • Creating a savings account  earn interest on your money • Negative incentives (costs/ penalties) • No homework  get a bad grade • Miss work  Lose my job • Utility (usefulness) • How often will I wear this shirt if I buy it?

  6. People make economic choices all the time. • People try to make the best decision or economize • Economize means to make decisions according to what you believe is the best combination of costs and benefits

  7. Ever heard this? • “There is no such thing as a free lunch.” • This old saying sums up the issue of choice in economics. • There is always a costfor something even if it is “free” • Ex: I went to the 311 concert last year for “free”. • I gave a unit of blood at the red cross • Ex: I signed up for gmail for “free” • I have to look at stupid advertisements when I read my email • Ex: I got a popcorn at the movies for “free” • I had to buy overpriced candy and soda to get the popcorn

  8. The key is weighing tradeoffs and paying the least opportunity costs • Tradeoff-the alternativepeople give up when they make choices • Ex: If you are going for a night out with your friends • A: Go to the movies • B: Go to dinner • If you take B (dinner) the tradeoff is A (movie), or vice versa. • Opportunity cost- the value of something that is given up to get something else that is wanted. • If you select B, the opportunity cost is seeing your favorite actor • If you select A, the opportunity cost is the nourishment of the meal you gave up

  9. Cost Benefit Analysis Frank is faced with a decision. He can either buy a $60 textbook or a new video for $50. Frank really wants the video game, but he needs the textbook to study. What should he do? • Option A- He buys the textbook • What is his tradeoff? • What is the opportunity cost? • How did utility impact his decision to buy the textbook? • Option B- He buys the video game • What is his tradeoff? • What is the opportunity cost? • How did utility impact his decision to buy the video game?

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