Chapter 1: First PrinciplesWhat’s New in the Fifth Edition?Chapter ObjectivesTeaching TipsIndividual Choice: The Core of EconomicsCreating Student InterestPresenting the MaterialCreating Student InterestPresenting the MaterialEconomy-Wide InteractionsCreating Student InterestPresenting the MaterialCommon Student PitfallsChapter OutlineCase Studies in the TextEconomics in ActionFor Inquiring MindsBusiness CaseWeb ResourcesHandout 1-1The Opportunity Cost of Attending CollegeHandout 1-2Making ChoicesDifficult ChoicesInstructor’s Resource Manual to accompany Krugman/Wells, Economics 5eRevised by Tori KnightChapter 1: First PrinciplesWhat’s New in the Fifth Edition?- New Economics in Action discussing Boston’s Big DigChapter ObjectivesThis chapter will introduce 12 basic principles of economics. - A set of principles for understanding the economics of how individuals make choices: (1) People must make choices because resources are scarce. (2) The opportunity cost of an item is its true cost. (3) “How much” decisions require making trade-offs at the margin. (4) People usually respond to incentives to make themselves better off. - A set of principles for understanding how economies work through the interaction of individual choices: (5) There are gains from trade. (6) Because people respond to incentives, markets move toward equilibrium. (7) Resources should be used as efficiently as possible to achieve society’s goals. (8) Because people usually exploit gains from trade, markets usually lead to efficiency. (9) When markets don’t achieve efficiency, government intervention can improve society’s welfare. - A set of principles for understanding economy-wide interactions: (10) One person’s spending is another person’s income. (11) Overall spending sometimes gets out of line with the economy’s productive capacity. (12) Government policies can change spending. Teaching TipsIndividual Choice: The Core of EconomicsCreating Student Interest- Try opening up the class with questions. For example, ask students if they have made anyeconomic decisions today? Write down their answers on the chalk/whiteboard. You may getanswers that include purchasing decisions, such as buying a tank of gas on the way to class. Youmay want to ask if all economic decisions involve money. Be sure to discuss all of their ideas.- Ask students to identify the resources that they think are scarce, both in their lives and in theworld as a whole. Make a list of these items as they call them out and then discuss the items on thelist. The obvious items will be time and money. You might use this opportunity to point out that itis not necessarily money that is scarce, but rather income. Other items on the list could includevarious natural resources, such as fossil fuels, land, food, and water. You might discuss the ideathat water and land are only scarce in some places or only at some times. Food is not necessarilyscarce, but many people do not have the means or ability to purchase an adequate amount of food.Instructor’s Resource Manual to accompany Krugman/Wells, Economics 5eRevised by Tori KnightRegarding the decision to come to class, ask students what the benefits of coming to class are, particularly on the first day? Then ask them what the costs of coming to class are? Some of them may think of monetary costs, such as tuition, books, or the parking permit they had to buy. Others may realize that there are other things they could be doing with their time. Use this example to discuss the difference between explicit and implicit cost, and the concept of opportunity cost. Presenting the Material- Emphasize that economics is the study of choices. The choices studied by economists includechoices made by individuals, choices made in markets, and economy-wide choices. While moneyand supply and demand are part of what economists study (these two topics are often what studentswho haven’t studied economics associate with the discipline), economics deals more broadly withdecision-making (choices). For most people, their earliest economics lesson takes place the firsttime they are in a store and their parents tell them no when they ask for something. That’s whenthey first learn that you can’t have everything you want (resources are scarce). It can be a difficultlesson (as you can tell if you have ever witnessed a toddler’s reaction in this situation!). - Define the four principles of individual choice and note that these principles will appearrepeatedly in upcoming chapters. Students will have no trouble understanding scarcity. Tointroduce the concept of incentives use your syllabus as an example and have students think aboutwhy you might assign homework or offer multiple exams. Why not just offer one final exam at theend of the semester? Students struggle with opportunity cost and marginal analysis.- Help students understand opportunity cost using an example. A basic opportunity cost examplemight go like this: On Friday night you can babysit and earn $40 or you can go to the movies withyour friend, which will cost you $20. What is the opportunity cost of going to the movies? Makesure they understand that the opportunity cost of $60 is the same amount they would end up with ifthey chose not to go to the movie. - To introduce marginal analysis, use an example similar to the Thinking at the Margin activityfrom the Activities section. - Finally, be certain that students understand that economics is an approach to decision makingand not a list of items to be memorized. Interaction: How Economies Work Creating Student Interest - Ask students to consider a business run by one person; for example, a law firm. Ask the studentswhat the lawyer will have to do in addition to trying cases to keep her law firm running. Examplesof these activities could include billing clients, paying the firm’s bills, or keeping the office clean.Ask the students how the lawyer could bring more revenue into her business, leading them toidentify hiring other people to take care of billing and cleaning. Use the discussion to highlight theconcept of specialization. The discussion can be expanded to also address why countries trade withone another.- Present the famous quote from The Wealth of Nations (1776) by Adam Smith: “It is not from thebenevolence of the butcher, the brewer, or the baker that we expect our dinner, but from theirregard to their own