Safari File Edit View History Bookmarks Window Help () 24% Thu 8:34 PM Q . . . h E A prod.reader-ui.prod.mheducation.com C Content M The Economic Perspective Dashboard + Aa Page 2 The Economic Perspective LO1.1 Define economics and the features of the economic perspective. Economists view things from a unique perspective. This economic perspective has several critical and closely interrelated features. Scarcity and Choice The economic resources needed to make goods and services are in limited supply. This scarcity restricts options and demands choices. Because we "can't have it all," we must decide what we will have and what we must forgo. At the core of economics is the idea that "there is no free lunch." You may be treated to lunch, making it "free" from your perspective, but someone bears a cost (as in the nearby story about ' Facebook). Scarce inputs involved in creating the lunch include land, equipment, and farm labor. Because society could have used these resources to produce other things, it sacrifices those other goods and services in making the lunch available. Economists call such sacrifices opportunity costs: To obtain more of one thing, society sacrifices the opportunity of getting the next best thing that could have been created with those resources. CONSIDER THIS... "tv 22Safari File Edit View History Bookmarks Window Help () 24% Thu 8:34 PM Q . . . h E A prod.reader-ui.prod.mheducation.com C Content M The Economic Perspective Dashboard + 19 of 858 > Aa 1) ) f Is Facebook Free? Facebook spends over $20 billion every year updating its platform, running server farms, and paying its employees. It also gives away its product for free to more than 2 billion users. Has Facebook figured out a way to overcome scarcity? No, it hasn't. Scarcity is permanent. But Facebook has figured out a way to more than cover its Rvlsoft/Shutterstock costs without charging its users a penny. Facebook's trick is to charge advertisers instead. They pay Facebook nearly $40 billion per year to boost content and target ads to specific individuals. Lesson One: If you are consuming a good or service and not paying for it, the cost is being borne by someone else. Lesson Two: Companies don't usually give freebies to be nice; they do it as part of their business model. Facebook grants users free access to its platform to make sure that it has as many "eyeballs" as possible to sell to advertisers. Purposeful Behavior Economics assumes that human behavior reflects "rational self-interest." Individuals and institutions look for and pursue opportunities to increase their utility-the pleasure, happiness, or satisfaction obtained from consuming a good or service. They allocate their time, energy, and money to maximize their satisfaction. Because they weigh costs and benefits, their economic decisions are "purposeful" or "rational," not "random" or "chaotic." 9 "tv 226 Safari File Edit View History Bookmarks Window Help 9 \"a? 1)) 24%| . Thu8134PM Q 6 EE 0 V \"t I) c o m 3:: a Content m The Economic Perspective u Dashboard + ii prod,readerui.prod,mheducationcom Ill p Aa e \"Purposeful behavior\" does not assume that people and institutions are immune from faulty logic and therefore are perfect decision makers. They sometimes make mistakes. Nor does it mean that people's decisions are unaffected by emotion or the decisions of those around them. Indeed, economists acknowledge that people are sometimes impulsive or irrational. \"Purposeful behavior\" simply means that people make decisions with some desired outcome in mind. Rational self-interest is not the same as selshness. On the contrary, increasing one's own wage, rent. interest, or prot normally requires identifying and satisfying somebody else's wants! Also, people make personal sacrices for others. They contribute time and money to charities because they derive pleasure from doing so. Parents help pay for their children's education for the same reason. These self- interested, but unselsh, acts help maximize the givers' satisfaction as much as any personal purchase of goods or services. Marginal Analysis: Comparing Benefits and Costs The economic perspective focuses largely on Mginal analycomparisons of marginal benets and marginal costs, usually for decision making. To economists, \"marginal\" means \"extra, additional,\" or \"a change in.\" Most choices or decisions involve changes in the existing state of affairs. Should you attend school for another year? Should you study an extra hour for an exam? Should a business expand or reduce its Page 3 output? Should government increase or decrease its funding for a missile defense system? Each option involves marginal benets and marginal costs. In making choices rationally, the decision maker must compare those two amounts. Example: You and your signicant other are shopping for an engagement ring. Should you buy a %- diamond? The marginal cost of the larger diamond is the added expense beyond the cost of the smaller diamond. The marginal benet is carat diamond or a lcarat the perceived lifetime pleasure (utility) from the larger stone. If the marginal benet of the larger diamond exceeds its marginal cost (and you can afford it), buy the larger stone. But if the marginal cost is more than the marginal benet, you should buy the smaller diamond we aavmooem mucus-angle an own a