Wednesday, September 4, 2013

Reading and quiz for 9/5

If you are having trouble logging in to moodle, email me at travis.ormsby@gmail.com so that I can provide you with your moodle login credentials.  If you continue to have trouble for any reason, the reading for 9/5 is here and the quiz is here.

Tuesday, September 3, 2013

Welcome to AP Macroeconomics

You should enroll yourself in the Moodle for this course by going to elearn.spps.org (new window).  You sign in with your active directory account (the one where your username is s followed by your CIF).

Once you have logged in, find the Navigation header on the left hand side bar.  Click "Courses" then "School Courses" then "Senior High Schools" then "Central" then "AP Macro"

You should see an option to enroll yourself in the course.  Once you do so, you will be able to access the materials for the course.  You should read the syllabus and the two readings for 9/4 and take the quiz on scarcity and opportunity cost.

If you do not know your active directory login, you may access tomorrow's reading here and the quiz for that reading here.  Bring the answers to the quiz to class tomorrow.  You must also email me at travis.ormsby@gmail.com so that I can get your login information to share with you.

I am delaying a vote on the various methods to allocate extra credit points until I can phrase the different options in a way that I find satisfactory.  Expect more information this week.

Readings for 9/4

If we can land a man on the surface of the moon, make a $5 footlong sandwich, or give someone a face transplant, why can't we get everything else we want?

Our problem is that we are selfish, greedy bastards.  Except for an extremely small percentage of people (who primarily live on Tibetan mountaintops), we are never going to be satisfied fully.

Don't believe me?  Try this little thought experiment: I offer Bill Gates a check for $1 Million.  No strings attached.  Do you think he'll say no?  Of course not.  Even though he's got billions upon billions of dollars, he didn't get that way by turning down million dollar checks.

That's the first law of economics: everybody always wants more (as long as it's free). 

This wouldn't be a problem if we had infinite resources available.  Then everyone could satisfy their infinite desires and you could, in fact, get everything you wanted.  Sadly, there are not infinite resources available.  Our planet only has a mass of 6E+24 kilograms and most of that is boiling hot metals that people don't really want that badly.

Limited resources + Unlimited Wants = Dissatisfaction.

Economists use the word scarcity to describe the dissatisfaction we get from having insufficient resources to fulfill our wants.  The fact that scarcity exists is the fundamental fact of economics.  If resources weren't scare, we wouldn't care about how they were distributed, or how to make more efficient use of them, or how they change over time.  For that reason, economics is sometimes referred to as the science of scarcity.  This is perhaps because it sounds better than the dismal science, which is what some other, jealous, petty, and mean people like to call it in order to make us look bad.

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So it's clear that you can't get everything that you want, due to the whole scarcity thing we learned about last time.  You can, however, get some things you want.  You have to choose.  Which of the infinite things that you want do you want most?  That means, of course, that there's going to be a bunch of stuff you're not going to get. Here's a little rhyme to help you remember:
When you choose, you loose.

You loose the chance to do/have/be something else.  Choosing implies mutual exclusivity.  Getting one means that you can't get the other one.  Because if you could have both, then you wouldn't have to choose, now would you?

Economists call this lost chance your opportunity cost.  Every time you do something, you are making a choice to not do something else.  There's probably an infinite number of things you could have done instead, but since each choice is mutually exclusive, we only consider your next best option to be your opportunity cost. 

An example would be helpful, I think:

As I write this, I could do any of the following things instead:
1) Race down the street wearing a purple sash and diamond tiara
2) Finish reading The Bride by Bapsi Sidhwa (an excellent book so far, highly recommended)
3) Go to sleep

Because each of these four options are mutually exclusive, I can only do one of them.  Clearly I actually chose to write this blog post, so that must be my best choice, but what was my next best option?  Running down the street at all, much less in a ridiculous get-up, doesn't sound like a particularly appealing option.  I would like to find out how Zaitoon deals with her in-laws in the Pakistani hill country, but my bed is looking awfully comfortable right now and I'm getting pretty sleepy, so I think that's my next best option after writing this post.

So my opportunity cost for writing the post is going to bed.  I can't both go to sleep and write this, so by choosing to write, I lose out on being able to go to sleep.

Economists care about opportunity costs, not about money costs.  The following example will illustrate the difference:

Several weeks ago, I took my car in to get the timing belt replaced.  I paid them $862.47.  But I had other opportunity costs:

1) I lost the opportunity to be certain that no one was ripping me off.
2) I missed out on playing with my daughter for the time I had to wait
3) I burned a whole gallon of gas driving there and back

I would gladly pay 10% of the final bill ($86) for an ironclad guarantee that I wasn't being ripped off.  I would have paid about $50 for someone to take my car in for me so I could use my time to be with my kid.  A gallon of gas runs about $3.50.   Note that these costs are not mutually exclusive.  I traded all of them plus the cash for 1 timing belt.  So the belt didn't cost $862.47, it really cost the equivalent of about $1,000 ($862.47 + $86 + $50 + $3.50).* 

My other choice was to go without a new belt and risk having my car break down (in which case I'd still have to pay all the costs, just at a less convenient time).  Since it is worth more than $1,000 to avoid that risk, it makes sense to take my car in to get it repaired.

The last important thing about opportunity cost is to understand that every action you can possibly take has one.  Because scarcity exists, you have to give up some opportunity in order to do anything.  This is where the saying "there's no such thing as a free lunch" comes in handy.  Even if I don't charge you for the lunch, you still could have been doing something else instead of eating the lunch.  If nothing else, by taking the lunch, you lose the opportunity to go on the popular (if medically insane) 24-hour Hollywood Miracle Diet.  You may not value that lost opportunity very highly, but that doesn't mean you didn't lose something.

*Notice that nifty little trick I did where I gave the value of my opportunity costs in dollars?  None of those extra lost opportunities actually cost me real dollars, but it's useful to be able to put their value in dollars in order to make easy comparisons.  Economists use the idea of "willingness to pay" in order to help quantify the value of opportunity costs, since such costs don't always involve cash payments.