Tuesday April 3rd Warm Up: What is Economics? How do you feel about Economics?
Learning Objectives SWBAT: • Identify and explain some basic economic principles • Apply basic economic principles to the elementary classroom • Evaluate if teaching students to think like economists will help them make better decisions in their future.
Stolen Lesson • Junior Achievement • http://www.ja.org/
Average Citizen on Economics • Economics is about making money! • Money is not the focus of economics.
Students on College Economics • The dismal science • It’s difficult • It’s boring • It’s not relevant to me
Let’s Get Relevant? • Traditional economics • College textbooks • Principles of Economics includes: • every economic concept of last 200 years! • Taught by lecture, graphs, lots of chalk
Consequence for K-12 Education • K-12 teachers • often avoid college economics courses! • If they do take such a course, • Retain little • Lack “economic way of thinking” • Lack enthusiasm • Lack ideas on how to teach economics
How People LearnJohn Bransford • This is a problem … • “Content knowledge of the teacher is crucial for student learning.”
Our Nation’s Dilemma • Less than 25% of adults experience a college economics course • Those who do, unlikely to “internalize” concepts • Critical need • K-12 economic education for teachers • deliver economics in schools
Content: What Should It Be? • We must • teach students how to think
The theory of economics does not furnish a body of settled conclusions … • it is a method rather than a doctrine, • an apparatus of the mind, which helps its possessor to draw correct conclusions. John Maynard Keynes 1883-1946
Economics Is … . . . not a body of knowledge, • but it is a way of thinking
Methodology: How to Teach? • How do you teach a skill? • Baseball, piano, economics • Practice! • “Activity-based” learning • not strict lecture • not memory • What’s Worth Teaching? Mark Brady • Students retain: • 20% of what they see and hear • 80% of what they experience
Objectives • Content • Strengthen background • A sampler • Pedagogy: • Experience activities • Enthusiasm
Would you like a Butterfinger? • ______ Wants • 1 Butterfinger • What is the economic problem?
Scarcity • Inability to satisfy everyone’s wants • Multiple uses for each resource • must choose how/where to use
technology What Is Scarce? • Productive Resources: • natural resources (land) • human resources (labor) • entrepreneurship • man-made resources (capital)
ScarcityChoice • Economics is: • the study of choice
Key Concept • Individuals and societies face tradeoffs • and must make choices.
In Groups • Discuss how elementary students experience scarcity. • How does scarcity in their lives require them to make choices?
The Economic Way of Thinking • Economists study: (1) why people choose what they do (2) consequences of people’s choices • for the individual • for society • if inefficient, how improve the outcome?
Candy Bar Activity • One Volunteer, please? • Opportunity lost opportunity cost • Value of the best foregone alternative • “Choosing is refusing” • choose A, refuse B – • cost of A is value of B
The Dismal Science! There’s no such thing as a free lunch!
Key Concept • Choice involves cost • opportunity cost
Why Do People Save? • To provide for future needs • This is the BENEFIT of saving
Every Choice Has a Cost! • Opportunity cost of saving? • What you give up to get something • If save, cannot spend now • give up present consumption
Economics: a Study of Choice • In choosing, we weigh: • BENEFIT of future consumption versus • COST of less consumption now B(X) C(X)
Why Do Americans Save So Little? • C(X): sacrifice immediate gratification • B(X): • Expected future consumption • or bequest to children • For many, the C(X) > B(X) . . . • and the data . . .
Personal Savings Rate 12% 10 8 6 4 2 0 –1 1946 1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
JA Economics for Success • Instant Gratification is a powerful! • Consider the results of experiments …
Choosing Fruit vs. Chocolate Choosing Today Eating Next Week Time If you were deciding today, would you choose fruit or chocolate for next week?
Patient Choices for the Future Choosing Today Eating Next Week Time Today, subjects typically choose fruit for next week. 74% choose fruit
Instant Gratification Choosing and Eating Simultaneously Time If you were deciding today, would you choose fruit or chocolate fortoday?
Time Inconsistent Preferences Choosing and Eating Simultaneously Time Today, subjects typically choose chocolate for today. 70% choose chocolate
Impatience: Instant Gratification Choose among 24 movie videos • some “low brow” – My Cousin Vinny • some “high brow” – Schindler’s List • Picking for tonight: • 56% of subjects choose low brow. • Picking for next Thursday: • 37% choose low brow. • Picking for second Thursday: • 29% choose low brow. Tonight I want sugar-coated entertainment…next week I want things that are good for me.
Consequence of Faulty Discounting • Average adult – • $6,000 outstanding credit card debt. • Few can afford to pay in full, • so make minimum payment each month • pay interest at very high rates on balance. • Immediate gratification is a powerful force!
Since Scarcity Implies Choice • … and since choice involves cost Why choose it? • Assume that: • People choose X if: • B(X) > C(X); • otherwise, not • where B(X) = benefit of choice X
Play It Again, Sam • Raise the cost • if C(X) > B(X), • choose another bar
In Your Group • Discuss how elementary students make choices based on the costs and benefits. • Could weighing the costs and benefits of choices help students make better decisions? • What type of decisions?
Key Concept • People respond to incentives
Consequences • People respond to incentives causing • intended consequences, and • unintended consequences • can offset the intended benefits
People Respond to Incentives • Mandated auto protection • seat belts • air bags • antilock brakes • Intended consequence? • “Seat belts save lives!”
Driving Speed • Benefits of driving fast, B(X)? • Get there faster • Thrill • Costs of driving fast, C(X)? • Ticket, fine • Accident, injury • Insurance premium
Driving and Snow • What happens when it snows? • On average, people slow down. • Why? • C(X) goes up • for many, C(X) now exceeds B(X), • people respond to incentives
Driving & Seat Belts • What happens when people wear seat belts? • C(X) goes down • B(X) > C(X) for some • who now drive faster • more accidents • Unintended consequence? • Seat belts increase injury! • Net Benefit?
Consequences • People respond to incentives • intended consequences, and • unintended consequences
The Camel Race • Two Bedouins met in the desert, and fell into an argument over their camels, each claiming that his was the slowest, “stubbornest,” most useless camel in all of Arabia. The argument ended in a bet. They agreed to race to the oasis, two miles away, whichever camel arrived last would be proved slowest, and his owner would win ten dirham from the other.
Camel Race continued • . . . They got on their camels, and set off slowly toward the oasis. More slowly, still more slowly. After a while, it became clear that since each Bedouin was trying to win the bet, they were never going to make it to the oasis. • . . . After a while, a wise sheik rode up on a donkey and asked them why they and their camels were standing still, in the middle of the desert, on a hot day, with the oasis less than two miles away.
The Camel Racecontinued • They got off their camels, and all three sat down in the shade of a rock while the two Bedouins explained about their bet. The wise sheik whispered two words to them. The Bedouins immediately jumped on the camels and rode off as fast as they could towards the oasis. • What were the two words? ________ _________ • Switch camels!