Task: How do you budget your time in a typical weekday?

• Use today for example, and write down how you divided the time you had during the day?

• Would you like to have more time in the day?

• If you had more time, what would you do with it?

AIM: How does scarcity affect economic decisions?

Scarcity: The Basic economic

problem that arises because

people have unlimited wants, but resources

are limited

Imagine that you are off at college

• You have a budget of $100,000 for the year.

• How would you divide your budget?

• Create a pie chart

• How did you decide on what to use your limited money to purchase? (hint: think about utility)

A rational person would try to maximize total utility given the total

amount of scarce resources that they have available (for example

time and money). • Pick an economic choice that you have made

before:• What were the alternatives that you had for

budgeting your scarce resource (time or money) • How did you decide upon budgeting your time

and money the way you did? (why didn’t you pick the alternatives)?

• How does this relate to the concept of utility

Going back to the all you can eat pizza problem that we did

yesterday

Pizza problem:

• Try to quantify in dollar terms the level of utility that you would receive from each slice of pizza (For example, I would receive $5 worth of utility from eating the first slice, and $4 worth of utility from the second etc. – you may also negative values)

Pizza Problem

1) If you had to pay $5 for all you can eat pizza (but only had to pay once), when would you stop eating pizza? Why?

2) If you had to pay $1.50 for each and every slice of pizza instead, when would you stop eating? Why?

3) If you had a choice of either taking the $5 all you can eat deal, or the pay per slice deal ($1.50/slice), which would you choose and why?

Homework (due 9/21)

• List and explain two examples of diminishing marginal utility (explain in detail, how and why the marginal utility for that product is declining). 1-2 paragraphs for each product