What is economics, and how do economic concepts apply to your life? With the complexities of technology and the current global economy, it may be helpful to consider a simplified and hypothetical scenario of an ancient family of potters who lived in a remote area. While the family was skilled and efficient, they only needed a certain number of pots but still needed clothing, shelter, food, and more. After struggling to tend to their farm and being unable to sell any more pots in their area, the family moved to a village that was in need of pottery. In this village, the family no longer had to tend to the farm, build and renovate their home, or make clothing. By focusing on their skills, they were able to trade their pottery with other families who were skilled in those other areas. By collaborating with traveling merchants, the family was able to manufacture more pottery that was sold across the lands and brought wealth to the potter family.

For this Assignment, you will explain basic economic concepts, such as how scarcity and incentives affect economic decisions, how marginal analysis affects the allocation of time and resources, how the production possibilities frontier for countries can be impacted by opportunity costs, and if absolute advantage and specialization create opportunities for gains from trade.

• Provide an example of a scarce resource and a free resource. What are the key differences between the two? What can cause a free resource to become a scarce resource?
• Economists argue there is "no such thing as a free lunch," yet you've just had lunch with a friend who paid for it. Are the economists incorrect? Explain using basic principles of economics.
• A manager notices the company's sales personnel are offering its customers deals that, while increasing revenues, are lowering profits. After reviewing the company's compensation plan, the manager finds bonuses are based on sales revenue. Explain the sales personnel's behavior using the economic principle that "people respond to incentives" and recommend a change to the compensation plan to correct this problem.
• You have 8 hours to study for two final exams. The exam for course A is worth 25% of your grade, and the exam for course B is worth 50% of your grade. The first hour you spend on studying for either exam will increase your score on it by ten percentage points, and the second hour will increase your grade on it by an additional nine percentage points, the third hour will increase your grade on it by an additional eight percentage points, and so forth. How will you allocate your time? Explain your answer in terms of marginal analysis.
• How do increasing opportunity costs affect the shape of the production possibilities curve? Provide an example that illustrates the concept of increasing opportunity costs. Include a graph or illustration to support your answer.
• Assume country A has an absolute advantage in producing all products compared to country B, but country B has a comparative advantage in producing several products. Are there opportunities for gains from trade? If so, what determines the direction of trade?
• Explain how international trade allows a country to move beyond its production possibilities frontier and create gains from trade.

Learning Resources

Required Resources

Scarcity and Choice

How do you decide what to purchase, how much to purchase, or whether to work more hours to increase your income or spend more time with your family? What factors influenced your decision to devote your time and money to get a degree? These decisions illustrate the basic economic question of how best to use your (or society's) limited resources to maximize your wellbeing or happiness. Limited resources, or scarcity, forces people and businesses to make decisions and select among options. These choices involve opportunity costs and trade-offs. The following resources will introduce you to some basic economic tools and principles that can help you make better decisions and achieve better outcomes.

Beveridge, T. M. (2017). A primer on microeconomics, second edition: Elements and principles, volume I(2nd ed.). New York, NY: Business Expert Press.

A Primer on Microeconomics, Second Edition: Elements and Principles, Volume I by Beveridge, T. M. Copyright 2017 by Business Expert Press LLC. Reprinted by permission of Business Expert Press LLC via the Copyright Clearance Center.

• Chapter 1, "Scarcity and Choice" (pp. 2-7)

Time Estimate:8 minutes

Crash Course. (2015c). Intro to economics: Crash Course econ #1 [Video file]. Retrieved from https://www.youtube.com/watch?v=3ez10ADR_gM

Note: The approximate length of this media piece is 12 minutes.

Khan Academy. (2017). Scarcity | Basic economics concepts | AP macroeconomics [Video file]. Retrieved from https://www.youtube.com/watch?v=iy-fhpbTH9E

Note: The approximate length of this media piece is 11 minutes.

The Production Possibilities Frontier

Are you aware that your spending decisions affect the allocation of resources on a national level? For example, if you and other consumers decide to purchase non-GMO versus GMO food products, together you change the nation's allocation of resources, with some farm land switching from GMO to non-GMO production. This change in consumption patterns and production illustrates movement along the nation's production possibilities frontiera model that highlights the limits imposed on a country's production by the availability of resources. Other decisions you make, such as pursuing a college degree in one subject versus another, will affect a key resource over timehuman capitaland influence the shape of the production possibilities frontier. The same is true for business investment decisions. As the extent and nature of the country's productive capacity changes, so too does its ability to produce final goods and services. In these resources, the production possibilities frontier model is highlighted, as well as the trade-offs society faces as it decides how to allocate its resources.

Beveridge, T. M. (2017). A primer on microeconomics, second edition: Elements and principles, volume I(2nd ed.). New York, NY: Business Expert Press.

A Primer on Microeconomics, Second Edition: Elements and Principles, Volume I by Beveridge, T. M. Copyright 2017 by Business Expert Press LLC. Reprinted by permission of Business Expert Press LLC via the Copyright Clearance Center.

• Chapter 1, "Scarcity and Choice" (pp. 7-26)

Time Estimate:40 minutes

Khan Academy. (2011c). Production possibilities frontier | Microeconomics[Video file]. Retrieved from https://www.youtube.com/watch?v=_7VHfuWV-Qg

Note: The approximate length of this media piece is 6 minutes.

Comparative Advantage, Specialization, and Trade

What would happen to your lifestyle if you were forced to produce everything you consumedyour clothing, shelter, food, transportation, et cetera? Undoubtedly, your standard of living would fall dramatically. The same is true for a country, although the decline would probably not be as dramatic. International trade makes it possible for a country to move beyond the limits imposed by its production possibilities frontier. Gains from trade are possible because not all countries are equally good at producing the same goods and services. The United States, for example, has a comparative advantage at producing wheat versus bananas as compared to Colombia. Both countries benefit if the United States produces wheat for Colombia and exchanges it for bananas. Both countries' resources are used more efficiently. The ability of countries and individuals to specialize does more than just allow individuals and countries to devote their resources to what they do best; it also promotes the further acquisition of knowledge and development skills that would otherwise not occur, making workers and resources even more productive.

Amadeo, K. (2018). Comparative advantage theory and examples: What makes one country better than another. Retrieved from https://www.thebalance.com/comparative-advantage-3305915

Time Estimate: 6 minutes

Crash Course. (2015d). Specialization and trade: Crash Course economics #2 [Video file]. Retrieved from https://www.youtube.com/watch?v=NI9TLDIPVcs

Note:The approximate length of this media piece is 9 minutes.

Khan Academy. (2011a). Comparative advantage, specialization, and gains from trade | Microeconomics [Video file]. Retrieved from https://www.youtube.com/watch?v=xx9xNJlPOJo

Note: The approximate length of this media piece is 9 minutes.

Marginal Revolution University. (2015e). Comparative advantage [Video file]. Retrieved from https://www.youtube.com/watch?v=4rUfoU04QJM

Note: The approximate length of this media piece is 7 minutes.

O'Connell, B. (2018). What is comparative advantage? Retrieved fromhttps://www.thestreet.com/politics/comparative-advantage-14651012

Time Estimate:11 minutes

Important Documents for the Week

Document:Academic Writing Expectations for 1000-Level Courses (PDF)

Document:Walden Undergraduate Paper Template (Word document)

Optional Resources

The Role of Graphs in Economics

Graphs are an excellent way to present data in an easily understandable format, illustrate relationships among variables, present models, and communicate ideas. The following resources can help you develop your graphing skills, which you will need to demonstrate in your Assignment this week. If you need additional support on graphing, review one or more of the following resources.

American Association for the Advancement of Science. (2019). Graph skills for introductory economics. Retrieved from http://sciencenetlinks.com/tools/graph-skills-for-introductory-economics/

Time Estimate: 1 minute

Bozeman Science. (2012a). A beginner's guide to graphing data [Video file]. Retrieved from https://www.youtube.com/watch?v=9BkbYeTC6Mo

Note: The approximate length of this media piece is 11 minutes.

Bozeman Science. (2012b). Graphing data by hand [Video file]. Retrieved from https://www.youtube.com/watch?annotation_id=annotation_389055&feature=iv&src_vid=9BkbYeTC6Mo&v=GUYRMdcEs00

Note: The approximate length of this media piece is 6 minutes.

Bozeman Science. (2012c). Graphing data by spreadsheet [Video file]. Retrieved from https://www.youtube.com/watch?annotation_id=annotation_530556&feature=iv&src_vid=9BkbYeTC6Mo&v=yvYvHU83_6Y

Note: The approximate length of this media piece is 5 minutes.

FlowingData. (2010, July 22). 7 basic rules for making charts and graphs [Blog post]. Retrieved from https://flowingdata.com/2010/07/22/7-basic-rules-for-making-charts-and-graphs/

Time Estimate: 4 minutes

Rittenberg, L., & Tregarthen, T. (2012). Appendix A: Graphs in economics. In Principles of microeconomics (Version 2.0). Retrieved from https://saylordotorg.github.io/text_principles-of-microeconomics-v2.0/s24-appendix-a-graphs-in-economics.html

Time Estimate: 51 minutes