Reading: Lesson 5 – Using Economics to Make Better Decisions

Lesson 5 – Using Economics to Make Better Decisions

 

Description:

In the previous lessons in this module, we have discussed various economic concepts that are crucial to making good decisions, namely: scarcity, marginal utility, and opportunity costs.

In this lesson, students will use the knowledge they have gained and apply it in an activity called “Find A Better Way” in which they will come up with solutions to contemporary, real-world problems.

 

Time:

45 min

 

Required Materials:

Internet access, writing instrument, poster board, markers

 

Prerequisites:                           

Lesson 3.1 – Scarcity, Choice, and Tradeoffs

Lesson 3.2 – Thinking at the Margin

Lesson 3.3 – Opportunity Cost

Lesson 3.4 - Decision-Making Techniques for Entrepreneurs

 

3.5.A – Complete the following activity and share your ideas with the group [45 min]:

Activity:  Find A Better Way

Introduction:

This activity involves students collaborating to brainstorm solutions to real-world problems using the economic concepts they’ve learned about in this module’s earlier lessons. Oftentimes the immediate, popular reaction to a problem is to have the government attempt to solve it, but government policies often fail to account for economic realities, leading to inferior outcomes. Students should think of ways markets can address these problems.

 

Directions:

Step 1: Students will be divided into groups of no more than 5. Provide poster board and markets to each group. Each group will be assigned a contemporary problem (each problem may be assigned to more than one group for larger classses). Examples of such problems are provided below.

·        Constructing and maintaining roads

·        Reducing obesity

·        Reducing air/water pollution

·        Providing airport security

·        Preventing the spread of foodborne illnesses

·        Providing access to health care for people who can’t afford it

·        Providing access to education for people who can’t afford it

Teacher Tip: Problems should be chosen before the class.

Step 2: Next, ask the students “How can people solve this problem?” Instruct the students to:

a.      Clearly define the problem.

b.      Consider how the problem is currently handled.

c.      Choose and explain a better way to solve the problem.

Additional things for the students to consider include:

a.      What are the seen (direct/obvious) effects of your solution? To whom?

b.      What are the unseen (indirect/subtle) effects of your solution? To whom?

c.      How do the incentives in your solution affect the behavior of those involved?

 

Step 3: Students will have 25 minutes to discuss possible solutions to their problem. After 25 minutes, each group will select one representative to give a 5 minute speech (with time for questions) explaining his or her group’s solution to the problem, being sure to address all of the items listed above. 

Lesson Recap

·        Every action—and certainly every policy—has both “seen” and “unseen” effects. It is very important to consider both when deciding between courses of action.

 

·        Every course of action is both a response to incentives, and a shaper of incentives. It is very important to consider what kind of actions incentives encourage, as well as what kind of incentives actions encourage.

 

·        Market-based solutions are best able to accommodate economic truths.

 

Additional Resources

Article: Sunk Costs: There’s No Crying Over Spilled Milk  by Steven Horwitz (FEE.org) – “Understanding that choice is always on the margin and that sunk costs are sunk can help you make better decisions in your personal life and spot fallacious reasoning by politicians. This is just another illustration that good economics is the key to critical thinking and good citizenship.”