Type:
Solution Manual
Introduction to Economics Social Resource: Issues and Economic Thinking Edition:
1st Edition
Author(s):
Wendy A. Stock
Introduction to Economics: Social Issues and Economic Thinking
Instructor’s Manual
Chapter 1: An Introduction to the Economic Way of Thinking Chapter Outline 1. An Introduction to the Economic Way of Thinking 1.1. Microeconomics and Macroeconomics 1.2. Why Study Economics? 2. Scarcity and Basic Economic Resources 3. How Do Decision Makers Make Choices? 3.1. Decision Makers Compare Benefits and Costs 3.2. Decision Makers Maximize 3.3. Ceteris Paribus 3.4. Decisions Are Made Incrementally or “At the Margin” 3.5. Law of Diminishing Marginal Benefits 3.6. Law of Increasing Marginal Costs 3.7. The Marginal Decision Rule 4. Appendix: Working with Graphs 4.1. Constructing Graphs 4.1.1. Obtain Data 4.1.2. Draw and Label Axes 4.1.3. Plot Points 4.1.4. Draw the Curve 4.2. Interpreting and Modifying Graphs 4.2.1. Intercepts 4.2.2. Slope 4.2.3. Moving Along a Curve versus Shifting a Curve
Learning Objectives After studying this chapter, students should be able to: • Define economics • Explain how scarce resources influence choices • Describe the influence of benefits and costs on deciding among alternatives • Identify the decision rules individuals and firms use to make choices • Explain why decisions are made “at the margin” • Assess the general conditions that generate maximum utility or profits .
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Introduction to Economics: Social Issues and Economic Thinking
Instructor’s Manual
Teaching Notes Students in your class are typically taking this class for one reason only, to fulfill a graduation requirement. This first chapter begins an opportunity to provide chapter after chapter of examples and illustrations in their real world of the relevancy of economics. Economics is not a “dismal” science. It is alive and in need of our attention. Economics exists because of the condition of scarcity. If societies did not have to contend with scarcity there would not be a need to observe behavior. What is scarce? In economics, the fundamental economic problem is that there are scarce resources to fulfill unlimited wants. Choices need to be made as to how to use them and because there are choices, there are costs, or opportunity costs. A triangle can be used to illustrate this concept. Also referred to as the Fundamental Economic Triangle, this visual demonstrates the relationship of scarcity of resources, choices made, and the costs of these decisions.
Because our economic resources are scarce, limited in quantity and have alternative uses, choices need to be made to determine the most efficient use of the resources. Does society want to use the available resources to build parks or tractors? Parks will provide immediate benefits to individual consumers. However, tractors will allow society to grow more food. Regardless of how society decides to use the scarce resources (more on this Chapter 2) a choice needs to be made. When a choice is made something will be given up, the cost of the decision. In economics, this cost is called an opportunity cost. Have students consider what their opportunity cost for coming to class was. For some it may be lost income, for others it may be foregone sleep. An opportunity cost is the cost of the next best alternative choice. The Economic Triangle also illustrates the concepts of costs and benefits in the decision making process. When a choice is made it is inferred that the option chosen was because some sort of .
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Introduction to Economics: Social Issues and Economic Thinking
Instructor’s Manual
benefit was received relative to the cost. Review activities suggested in Teaching Tips for ideas on how to present this concept in class. We make decisions that provide us some benefit considering the cost. Why the emphasis on the margin? The most control of anything is on the next unit. We have the most control over the next dollar spent, the next hour of time, etc. Margin means extra, or next, in economics. Therefore economic choices are concerned with the benefits received versus the cost of the next unit consumed or produced. If I consume another cup of coffee what will be the benefits versus the costs for this decision? Decisions are made at the margin. Traditional theory on economics behavior tells us that with each additional unit consumed our benefits decrease, or diminishes. For additional units to be consumed the cost will need to decrease. On a hot summer day after mowing the back yard you will be willing and able to purchase and consume a cold beverage to quench your thirst. How able and willing would you be to purchase and consume a second, or a third? How would your decision be affected if the price would decrease for the second beverage and again for the third? This demonstrates the Law of Diminishing Marginal Returns. An important concept in the decision making process that students tend to stumble over is a sunk cost. A sunk cost is a consequence of a decision that cannot be changed, or recovered. A sunk cost should not be considered as a cost of the decision. For example, you decide to spend your afternoon at a movie. You purchase a ticket and settle in with your additional purchases of popcorn and soda. Thirty minutes into the movie you find you find nothing about the movie interesting and decide to leave. You will not get a refund on the ticket, will you? No. This is a sunk cost for your time. If you consider doing something else that afternoon, the movie should not be part of the decision making process.
Teaching Activities 1. An exercise to introduce the concepts of scarcity, choice and cost is with a group activity that requires them to make decisions on how to use resources to build something. Adapted from an Army ROTC team building task, the Tower Building Exercise is a small group activity that allows student to develop an understanding of the fundamental economic challenge of limited resources and unlimited wants before a formal presentation in class. Approximately 50 minutes will be needed for this exercise. Time can be adjusted to accommodate different class structures. a. Set Up: 6 – 8 minutes i. Break students into small groups directing them to move any personal items out of the way and clear space in their individual area ii. Goal is to build the tallest, free-standing tower using given resources only
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Introduction to Economics: Social Issues and Economic Thinking
Instructor’s Manual
iii. Give each group a bag of “resources” to be used to build a tower 1. Review the materials provided in the bag (these material are suggestions and can be adapted/changed as needed) a. 1 sheet of legal size paper b. 1 foam or paper cup c. 1 foam or paper plate d. 2 – 5”x7” index cards e. 4 – 3”x5” index cards f. 1 roll of masking tape g. 1 pair of scissors h. 1 pencil or marker i. 1 pencil iv. Explain the rules 1. Everyone must participate 2. They may only use the items provided 3. They may manipulate the items in any way desired with the exception of taking apart the scissor 4. They do NOT have to use all the items 5. They may NOT adhere the structure to the floor, ceiling, or any other surface 6. The tower must withstand a slight breeze v. Ask questions for clarification b. Execute: Total 20 minutes (5 minutes PLANNING, 15 minutes BUILDING) i. Direct students to begin the PLANNING PHASE. ii. After 5 minutes, direct students to begin the BUILDING PHASE. iii. After 15 minutes, have students stop and bring their towers to the front of the room for evaluation. 1. Bonus points can be provided for the team with the tallest tower. c. Processing: 10 minutes i. After class discussion about scarcity of resources, choices and the costs of decisions assign students with the following questions 1. How did the Tower Building Exercise illustrate the fundamental economic problem of scarce resources and choices? 2. Using the Tower Building Exercise provide specific illustrations of marginal costs and marginal benefits. ii. Responses can be collected from individual students or from groups shared with the class. 2. Provide opportunities for the students to give examples of decisions made and the benefits received and the costs for the decision
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