Lesson1

Name: _____________________________
Course: ____________________________
Instructor: __________________________

Date: _______

THE WORLD GAME OF ECONOMICS: LESSON 1
Focus on Opportunity Costs, Conflicting Goals & Marginal Analysis

NOTE: It is highly recommended that you read over this entire lesson before you begin.

Preliminary Discussion: Economics studies the allocation of scarce resources. The most fundamental principle in economics is that you have to give up something to get something in a world of scarce resources. There are no free lunches. People and their governments must make difficult choices, and every decision entails an opportunity cost. For example, resources allocated to the production of military equipment have the opportunity cost of not being used to produce something else such as luxury cars, home furnishings, or medical care.

Economic goals are often conflicting because of the scarcity of resources. One goal is accomplished at the (opportunity) cost of another. For example, most economists are convinced that there is a short-run trade-off between inflation and unemployment. The closer the economy gets to full employment, the greater the probability of encountering accelerating inflation. Economic growth can conflict with the environment. Urban sprawl, congestion, garbage, and air pollution are all examples of the costs associated with growing economies and regions.

To resolve the conflicting nature of economic decision-making, economists are guided by the marginal benefit = marginal cost principle. That is, something is worth doing in economics as long as the marginal benefit is greater than or equal to the marginal cost of doing it. If the marginal cost exceeds the marginal benefit, then it's not worth doing. For example, using economic policy to reduce unemployment is worth doing so long as the costs of inflation are minimal. Economic growth is desirable when its benefits to society in the form of more production and jobs are greater than its associated costs.

The role of economic policy is to undertake steps to improve the country's overall economic performance and find that delicate, acceptable balance of conflicting goals. Generally, the goals are to achieve full employment, price stability, and economic growth without excessive pollution.

In The World Game of Economics you are the chief economic adviser to the leaders of the country of your choice. You are in charge of economic policy. The objective is to implement timely and appropriate economic polices to improve the overall economic performance of your country. Good luck and have fun!

1. Play The World Game of Economics to 100 points against one other country that is computer-managed (i.e., advised by Professor N. D. Cator). Note: If you do not know how to play the game, then select "Tutorial" from the main menu first. If you already know how to play, then select "New Game."

You are the chief economic adviser to which country? __________________________.

SOMETIME AFTER THE 3RD YEAR AND BEFORE THE 10TH YEAR OF THE GAME COMPLETE THIS EXERCISE.

2. Which year have you chosen to complete this exercise? __________.

3. On the template below, indicate where your economy is currently positioned at the beginning of your turn before you click on the Economic Indicator. Use a pen to sketch your country’s flag or print an abbreviation (e.g., USA = United States). Note: If you know how to use "Print Screen" tools, then use that method and attach to this exercise Circle the current position of your country.

4. Look at the diagram below. In which direction is the Economic Indicator currently pointing at the beginning of your turn: (Circle One)

Direction: 1 2 3 4 5 6 7 8

5. Considering the layout of The World Game of Economics, if your economy were to move in the direction of the Economic Indicator (at the beginning of your turn), then Economic Growth as measured by the Gross Domestic Product (GDP) would: [___increase] [___decrease] [___not change]. Pollution would [___increase] [___decrease] [___not change]. Unemployment would [___increase] [___decrease] [___not change]. Inflation (ie., prices) would [___increase] [___decrease] [___not change]. Therefore, if your economy were to move in the direction of the Economic Indicator, it would benefit from _________________________ at the cost of _________________________.

6. Now Click on the Economic Indicator and the Current Event. Go to the Policy Board and select your best possible economic policies. COMPLETE THE GAME. Print the final score and attach it to this exercise.

ANSWER QUESTIONS 7 - 11. (Circle the letter before the best single answer).

7. You get the most points by landing in the center of the playing area in The World Game of Economics, because:
(a) You have no garbage, no inflation, no unemployment, and lots of stuff.
(b) It is the highest possible level of production.
(c) All of the economic goals are being satisfied to everyone's satisfaction.
(d) Everyone is happy.
(e) It represents an optimal balance regarding marginal trade-offs among conflicting goals.

8. If your economy were in the Depression corner of The World Game of Economics, then moving (diagonally) toward the center of the playing area would be:
(a) undesirable, because the benefits of increased production and lower unemployment are minimal compared to the costs of excessive pollution and inflation.
(b) desirable, because the benefits of greater output and lower unemployment would exceed the costs of slightly higher prices and more garbage.
(c) undesirable, because lower pollution and reduced prices (deflation) are always good for society, even if production and incomes fall and workers lose their jobs.
(d) desirable, because it would indicate that lazy people would be forced to work and the increased output would cause prices to fall.
(e) desirable, because economic growth and full employment are always better for society even if inflation hurts families on fixed incomes and pollution diminishes the quality of life.

9. If your economy were in the Stagflation corner of The World Game of Economics, then moving (diagonally) toward the center of the playing area would:
(a) result in lower unemployment, higher prices, a higher GDP, and less garbage.
(b) result in higher unemployment, lower prices, a lower GDP, and more garbage.
(c) result in lower unemployment, higher prices, a lower GDP, and less garbage.
(d) result in lower unemployment, lower prices, a higher GDP, and more garbage.
(e) result in higher unemployment, higher prices, a higher GDP, and more garbage.

10. Hyperinflation (i.e., excessive inflation) is undesirable, primarily because:
(a) even though people may have jobs, their wages do not generally keep pace with inflation so that their living standards and the value of their savings are actually falling.
(b) most people can't count higher than one million.
(c) it causes urban sprawl, congestion, pollution, and too much garbage.
(d) nobody benefits from it.
(e) all of the above.

11. Cybernation demonstrates that technological change can reduce costs, increase productivity and result in lower prices, but at the expense of:
(a) using up scarce resources more rapidly.
(b) less production and lower family incomes.
(c) structurally displaced workers who lose their jobs.
(d) making other countries that don't have the new technology relatively worse off.
(e) too many dollars chasing too many goods.

END OF LESSON 1

Note: At the discretion of the instructor, you will receive _____ possible points for this exercise.

Instructor's Option: At the discretion of the instuctor, you will receive _____ additional points if you win the game!

Winning Strategy Hints: Winning strategy involves anticipating the Economic Indicator, playing your policy options efficiently, coordinating your range of policies, and using trade policy to prevent one country from getting too far ahead. Consider your opponents’ options and try to anticipate their trade policies. Keep in mind that computer managed countries tend to use trade restrictions, tariffs, and currency devaluations when they have high unemployment. Be careful not to get caught having too many inappropriate and useless options. Discard policy gridlock and foreign policy conflict options as frequently as possible. [You don’t want to be trapped in a Depression like the United States in the 1930s or caught like Germany in Hyperinflation in the early 1920s]. Study the probabilities that are provided in the instructions. That will help you plan your strategy.