Class handout for Lecture I

Outline for Chapter 1 (3-5), Chapter 2 (22-23,27-28)

I) Economics – The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of wants


II) Scarcity – there is only a limited amount of “goods” in this world. But there are 6 billion people, all of whom want to do different things with these goods. How do we go about allocating these resources?

Example: The LOTR and “The One Ring”

Note two things about the one ring.
1) Rival good
2) Excludable

(Later in the course we will be talking about Public goods, which are exactly the opposite)

III) Opportunity Cost – The value of the next best alternative foregone i.e. what you had to give up!

The two examples to give to the students are Jack Bauer and 24. Relate the time he had to choose between saving the life of the Chinese ambassador who knew where the terrorist bomb was or the life of his girlfriend’s ex-husband. The doctor represents scarcity and the death of Paul Raines was the “opportunity cost” of stopping the terrorist threat.


Then talk about coming to class. Scarcity here is the students time while the opportunity cost is what they would have been doing if they did not come to my class. Pass around the paper about how much more money they would make if they stayed in school and got their diploma


If you are running early talk about this:

1) Marginalism – Marginal Benefit vs Marginal Cost.

Sumo Wrestling: the 7-7 and 8-6 fight vs the other ones. The marginal benefit of the 15th win is very large for the 7-7 fighter. But the benefit to the 8-6 fighter is low. If they collude, the 7-7 fighter can pay the 8-6 fighter to cover the cost of losing the fight plus a little extra and both would be better off (from their perspective, but not the sport!)

Another Application: Should I eat the 3rd Big Mac?