You said:
I want to teach you something...
ChatGPT said:
Great — I'm all ears. What would you like to teach me?
You said:
Pretend you are in third grade. I'm going to have a discussion with you. Feel free to ask lots of questions or raise counter-examples. I will attempt to walk you through the topic. Sound ok?
ChatGPT said:
Yes! That sounds fun!
(pretending to be in third grade)
Okay, I'm ready! What's the topic? Is it gonna be hard? I might need help...
You said:
This topic is going to be very easy because it's something you already do every day! I want to talk to you about the decisions you make. Can you tell me a decision you had to make today?
ChatGPT said:
Umm… okay!
This morning, I had to decide what cereal to eat. We had Froot Loops and Cheerios. I picked Froot Loops… 'cause they taste better and have all the colors!
Was that a decision?
You said:
Absolutely--that's a great example! I'm going to talk to you about a word that sounds complicated, but it's really not. Like I said, you already know how to do it! We are going to talk about "economics"--it's really just a fancy word for how decisions get made. You had a choice this morning between two different cereals. You picked Froot Loops because it has certain qualities you like--it tastes good and has fun colors. Sounds like you made a good choice...for you. But someone else might have picked Cheerios. Personally, I like Cheerios better--and that's okay! We can each like what we like, right?
ChatGPT said:
Yeah! That makes sense!
So… economics is just… making choices? I thought it was, like, all about money and banks and boring stuff. But if it's about picking between Froot Loops and Cheerios, then I already do economics every day!
Wait… what if I wanted both cereals? Is that still economics too?
You said:
Good question. Many things in life can only be done one at a time. For example, we could go to the zoo today, or we could go swimming. We can't go to the zoo WHILE we are swimming. If we wanted to do both, we would have to do one and THEN the other. Can you think of something else that we can only do one at a time?
ChatGPT said:
Hmm… oh! I know! You can’t eat pizza and brush your teeth at the same time! You gotta pick one first.
Or like… you can’t watch a movie and play soccer at the same time. You have to choose what to do first.
Is that kinda like what you mean? We have to pick one thing and wait to do the other one later?
You said:
Exactly! So, here's an important word in economics I want you to remember--"tradeoff". Since we can't always do things at the same time, we have to pick one over another. Now, your cereal example is a little different because you could mix the two cereals into the same bowl and eat them both. But think about another choice you made when you decided to have cereal this morning--you chose cereal over all the other things you could have eaten. What else could you have had for breakfast?
ChatGPT said:
Oooh okay, so a tradeoff is like… giving up one thing to get another thing. I get it!
So instead of cereal, I could have had… umm… pancakes! Or toast! Or eggs! Or even a banana!
But I picked cereal, so I didn’t get pancakes or toast or any of those other things. I guess that’s the tradeoff, huh?
Is there a word for the thing you didn’t pick? Like, the one you gave up?
You said:
You're understanding tradeoffs very well. Here's another key idea I want you to remember--"opportunity cost". Opportunity cost is anything we DON'T choose because we picked something else. When you chose Froot Loops, you gave up the opportunity to have Cheerios. You also gave up the opportunity to have eggs or pancakes or anything else. When we go to the zoo, we give up the opportunity to also go swimming. When we go outside to play soccer, we give up the opportunity to sit on the couch and watch a movie. Everything in life has a tradeoff, or a "cost" to it. The "price" we pay to play soccer is not watching a movie right then. We can't have everything we want in life all the time, so we have to make choices based on what we want at certain times. Tomorrow you might decide to have a different breakfast. Every choice we make means we DIDN'T choose something else. So, we've learned two key ideas about economics--can you remember what they are?
ChatGPT said:
Yes!! I think I got it!
The first one is tradeoff — that means you have to choose one thing and give up something else, because you can’t do everything at once.
The second one is opportunity cost — that’s the thing (or things) you didn’t choose. Like, if I eat cereal, I’m not eating pancakes or eggs… so those are my opportunity cost!
So… every time I make a choice, I’m kind of doing economics, huh?
Can I ask something? What if I don’t know which one I want more? Like… what if I really really want to go swimming AND go to the zoo and I just can't pick? What do I do then?
You said:
Yep, you're ALWAYS doing economics! If you find yourself in a situation where you can't decide what to do, that means you won't do anything. This is another key point of economics--humans have to act. We have to DO stuff. After all, if we don't eat or sleep or find shelter, we won't survive. We have to DO things just to be alive. After that, we do things according to our preferences--what we like most--as well as what we think will give us the most happiness from those choices. One of the best thinkers in economic history, a man named Ludwig von Mises, said that ACTION is the foundation of all of economics. You chose Froot Loops because you had a preference for the taste and the colors, at least for today (remember, you might make a different choice tomorrow), and you guessed that Froot Loops would make you most happy today--that it would give you a good breakfast. Were you right? Are you happy that you chose Froot Loops today?
ChatGPT said:
Yeah! I was super happy with my Froot Loops! They were crunchy and sweet and made breakfast fun. So I think I made the right choice for today.
That Mises guy sounds really smart! I didn’t know people studied stuff like action and breakfast and choices!
So… economics is kinda like figuring out why we do what we do—and how we decide between things. That’s actually kinda cool.
What if I think something will make me happy, but then it doesn’t? Like… what if I pick the zoo, but it rains and we can’t see the animals? Did I mess up the economics?
You said:
Not at all! We sometimes don't know what will lead to a good outcome. You're right that maybe rain will ruin our plans. Or maybe I go to a restaurant and something on the menu looks tasty, so I decide to try it, but I end up not liking it. Or maybe we go on vacation to a new city, but it turns out to be boring. We can't predict the future! We can only go off of past experience of what has previously led to positive outcomes. We never "mess up economics" because there are no right answers. We simply make choices based on what we think will turn out well for us. If they don't, now we have more information for making a decision next time. What is an example of a time you made a decision that didn't go as well as you wanted?
ChatGPT said:
Hmm… okay… one time I chose to trade my cookie at lunch for my friend’s pudding cup, ‘cause I thought I’d like it better. But the pudding was warm and kind of yucky, and then I really missed my cookie.
So I learned that I like cookies more than weird warm pudding!
I guess that was my opportunity cost too, huh? I gave up the cookie and didn’t like what I got instead. But now I know for next time.
So… economics is also about learning from our choices?
This is kinda like being a detective about my own life!
You said:
Good comparison to being a detective! Now you know that the next time you are offered that trade from your friend you should keep your cookie--you've learned about yourself and what you like :) The big reason that choices are so personal to each individual, and there are no real "wrong" choices, is because of another important term--"subjective value". Do you know what it means to "value" something?
ChatGPT said:
Yeah! I think so!
To value something means you think it’s important or you really like it. Like… I value my stuffed animal because it helps me sleep. Or I value time with my grandma because she tells funny stories and makes cookies!
But what does “subjective” mean? Is it like… subject in school? Or is it something else?
You said:
You're right--value usually means we think something is important to us. "Subjective" means that we as individuals get to choose the value we place upon something. This is different than "objective" which means--in economics--that there is a set value to something that is a standard, one that everyone should agree to. For example, that you like Froot Loops is subjective because that is your preference--it's your opinion that you think it's a good cereal. Froot Loops cannot be objectively good because someone else may not like Froot Loops. There is nothing about Froot Loops that has a measurable "goodness"--it's only good because you think so. We could say that oxygen is objectively valuable because we all need it to breathe. The fact that we all HAVE to have it means it is inherently important to us. Since most things in life are based on personal preferences, almost everything in economics is based on subjectivity. Can you think of some other things that you value subjectively but someone else may not agree with you?
ChatGPT said:
Ooh okay, I think I’m getting it now!
So “subjective value” means I decide what something is worth or how good it is—to me. And someone else might think totally different!
Let me think… I really like playing with Legos. I think they’re super fun and awesome! But my cousin says they’re boring and she’d rather play dress-up. That’s subjective, right?
Or like… I think pineapple on pizza is yummy, but my friend says it’s gross! That’s another one!
So there’s no right answer, just different opinions. Is that why people buy different things and make different choices—even if they have the same stuff to choose from?
You said:
That's exactly right! And since different people have different preferences, they are going to be willing to pay different prices to have those different things. To use your pizza example, since you like pineapple pizza, you might be willing to spend $20 for it. But since your friend doesn't like it, he or she might not want to pay for it at all. So, what is a pineapple pizza worth? Well, to you it is whatever you are willing to pay for it, and to your friend it might be zero. So, here's a tough question: how does a restaurant know how much to charge customers if some people are willing to pay a lot and others are only willing to pay a little, or even nothing at all? How do they know what price to put on the menu?
ChatGPT said:
Whoa… that is a tricky question!
Hmm… okay, so if everyone likes different stuff and is willing to pay different amounts, then the restaurant can’t make everyone happy with just one price.
But… maybe they guess a price that most people think is fair? Like, if lots of people are willing to pay around $15 for a pineapple pizza, they might put it on the menu for that much. That way, some people are super happy to pay, and others are like “okay, that’s fine,” and maybe only a few say “nah, too much.”
Is that kind of how it works? Do they watch what people actually do and change the price if not enough people buy it?
You said:
That's exactly right--they have to learn from the customers. We often think that businesses just decide what to charge and customers are stuck paying the prices, and then the owners get to keep the money. But in capitalism, it's the customers who give the business owners information. If the owner of a restaurant makes a guess that people will spend $100 for pizza, hardly anyone will buy it. The owner will have to reduce the price to whatever level people think it is a good deal--like you said, maybe $15 is what makes people happy. In a free market, the customer always has the choice to not buy pizza, so the restaurant has to offer it at a price they are willing to buy it. Otherwise, what happens if the owner doesn't listen to the customers?
ChatGPT said:
Oh! I know this one!
If the owner doesn’t listen to the customers and keeps the price too high… then nobody will buy the pizza!
And if nobody buys, the restaurant won’t make any money… and they might have to close down!
So the customers are actually kind of like… the boss! Even though the owner owns the place, they have to listen to what the customers want and how much they’re willing to pay.
That’s kinda backwards from what I thought! I thought the business just told people what to pay. But it’s really the people who decide if the price is okay or not!
That’s what capitalism means, right? That people get to choose?
You said:
Nailed it! Because pizza is based on people's subjective value, there is no right answer for what pizza SHOULD cost--it's not an objective number. Therefore, prices are determined by the owner learning from customers what the value should be. Let's stay on your pizza idea for a minute and talk about another key idea. Let's say you are REALLY hungry and want to buy just one slice of pizza. How much money would you like to spend on it?
ChatGPT said:
Hmm… okay! If I’m REALLY hungry, like my tummy is growling loud, I’d probably be super happy to spend… maybe $3 or $4 for one big, cheesy slice.
That would make me feel better and full again!
But wait… what if I already ate four slices and someone offers me a fifth one? I’d probably be like, “Ughhh… no thanks, I’m full!”
So I’d maybe pay nothing for that slice!
Is that part of economics too?? Like… I wanted the first slice a lot, but each one after that was less important to me. Does that have a name??
You said:
You are very sharp! That is called "marginal utility"--where our willingness to pay for something changes based on what we have already consumed. You're right that the MOST we will be willing to pay for something is during the first transaction, in our case the first slice of pizza. If we are hungry, and we want to cure our hunger, we will probably pay several dollars for a good slice, just like you said. But after you've had a few slices and you aren't hungry anymore, your price--your subjective valuation--goes down. And you're right, at some point, when you're REALLY full, you might not want to spend any money on pizza. So, it's interesting that sometimes your value of pizza is maybe $4, but other times your value is $0. And you're the same person! "Utility" basically means how much happiness we get. And "marginal" means that our satisfaction changes based on how much we have of something. So, our marginal utility for pizza decreases with every additional slice we have. If the owner of the restaurant has to guess what you may want to pay--and you're just one person--think how difficult it is guessing what lots of people would be willing to pay for pizza, since they all have marginal utility too. It's a lot to think about, isn't it?
ChatGPT said:
Whoa… yeah! That is a lot to think about!
So "marginal utility" means the more of something I get, the less I care about having even more of it. Like… the first slice makes me really happy, but the fifth slice? Meh. Maybe even negative happiness if I feel sick!
That must be really hard for the pizza shop owner. Because not only do different people like different toppings and have different opinions about price… but their hunger changes too! And how much happiness they get changes with every slice!
It’s like… running a pizza shop is also doing a big guessing game with economics every day!
So… are all businesses doing economics like this all the time? Like, even toy stores or ice cream trucks?
You said:
Yep, every type of business has to face these choices by their customers. That makes running a business pretty risky. And before the pizza owner ever even sells a pizza to a customer, there are a lot of expenses that go into even trying to open a pizza restaurant. What costs do you think the owner has to pay for before ever having any customers?
ChatGPT said:
Ooooh okay! So before they even sell one slice of pizza, the owner has to spend money on a bunch of stuff!
Let me think…
They need to buy ingredients: like cheese, dough, sauce, and toppings.
They need ovens and kitchen stuff to cook the pizza.
They have to pay rent for the building the restaurant is in.
They might need to hire workers to help cook and take orders, so they have to pay them too.
And maybe they have to pay for tables and chairs, and menus, and even napkins!
Oh! And maybe signs so people know the place exists!
That’s a LOT of stuff just to get started!
So if no customers come in, the owner still has to pay all that? Is that why some businesses fail sometimes? Because not enough people buy their stuff?
You said:
That's right--an entreprenuer (someone starting a business) is usually already in quite a bit of debt before ever making their first sale. Businesses might not survive for lots of different reasons, but you are correct that, ultimately, not enough people buy their stuff to make up for the costs that went into starting the business or keeping it afloat. Do you think you would want to take that kind of risk someday?
ChatGPT said:
Hmm… that sounds kinda scary!
But also… kinda exciting!
I think it would be really fun to start something like a toy store or a bakery or maybe even a game café! But I’d be nervous too—because what if nobody comes, or what if I run out of money?
I guess I’d have to think really hard about what people want, and try to make it special so they want to come to my place instead of somewhere else.
So… being an entrepreneur is like taking a big chance, hoping that other people will like your idea enough to pay for it. And that’s part of economics too, right?
I think… maybe I’d want to try it. If I had a good plan. And cookies. Definitely cookies.
You said:
I'm always looking for good cookie shops! But there's another problem that we have to talk about regarding the choices we make. Are you ready to keep going?
ChatGPT said:
Yes!! I’m totally ready!
I’ve got my thinking cap on and maybe even room for a cookie or two
What’s the next problem with choices? Is it a big one??
Join me for more of our conversation in part 2 tomorrow…
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