Introduction


If we can imagine a utopian world, where every want and desire could be fulfilled for everyone on the planet, how would we choose to spend our lives? Would you spend your life eating the best foods, socializing with the smartest people, or even exploring the most interesting corners of the world?

While it's impossible to say what a person would do in such a fantasy universe, one thing that we can be certain of is that even in a fantasy land of chocolate rivers and marshmallow clouds, individuals would have to make choices. After all, our time is limited, even when other resources are not. How we choose to live our life, and use the resources we have at our disposal is the primary interest of economics.

In the real world, we obviously do not have unlimited resources. We are constrained by time, money, location and many other things. Since we cannot instantly change these constraints, from moment to moment we must instead choose how best to go about fulfilling our wants (which are endless) with our resources, which are not. The study of economics is exactly this: the study of how to pursue limitless wants with limited means.

In this class we will be applying this idea to the specific consideration of parks and recreation. Communities, in some ways, operate on the same principals as individuals. A community would like to have perfect streets, beautiful parks, healthy citizens, and many other civic goods. However, communities, like individuals, cannot get everything. They must make trade-offs, and hopefully, they will make good decisions that will benefit their citizens.

In order to achieve this goal, it's important that individuals understand the economic realities of the community, so that better decisions can be made. A community making decisions only based on whim, without consideration for what will best serve the people that live there, would be unlikely to draw new industry, new residents, or even maintain its basic services over time. In order to understand how economists might try to manage these decisions, we need to start by talking about what is possible.

Production Possibilities and Opportunity Costs


In order to make well-informed decisions, we must always start by knowing what the possible choices are. If we consider a community to be "producing" services (i.e. clean streets, public transportation, clean air) then we can begin to build a list of all the things we can do. We would call these our production possibilities.

Simply making a list only gives us a small part of the picture, however. In order to make decisions, we also need to compare these things against one another in a meaningful way. For instance, given a limited amount of tax revenue, how much should be spent on trash disposal versus trail maintenance? In order to make this choice, economists encourage the consideration of things in terms of opportunity costs. the opportunity cost of a thing is what you have to give up to get it. In our example, the opportunity cost of better trails might be better waste disposal. Likewise, the opportunity cost of disposing of trash might be trail improvements.

There are many benefits to thinking in terms of opportunity costs, but primary among them is that by casting decisions into these terms we give ourselves a degree of perspective. It is important, however, to always consider opportunity costs in terms of what is possible.

By thinking of all possible manners of production, our community can build comparisons between these "production possibilities." By building a continuum from expending all of our energy on one item versus spending all of our energy on a second item, we can see our trade offs as a graph, which we call a production possibilities curve.
300px-Society’s_Production_Possibilities_Frontier_graph.gif
Example of Production Possibilities Curve


This curve simply illustrates all possible points at which we can choose to produce. The line of the curve is called, in techno-jargonese, the production possibilities frontier. Every combination of goods and services outside of this frontier is considered impossible. However, everything inside of that frontier is considered inefficient - we could produce more, so why don't we?

In the illustration to the right, we can see that some society is choosing what amounts of guns to produce instead of butter. In this case, they can choose more guns (point B) or more butter (point A). Point C would be awesome (more guns AND more butter!) but alas, is impossible. Point D (less guns, less butter) is possible, but inefficient, representing using all of your resources to do less.

Valuation and Comparison


So, even knowing what is possible and understanding our trade offs, there are still some difficulties we have to face up to before we can get down to the nitty gritty of making good decisions. The biggest difficulty, and the one people spend the most time obsessing over and arguing about, is not determining what our options are, but determining what our options are worth.

Even as individuals, we are sometimes at a loss to explain why one thing is more precious to us than another. When we go to the market, there are mechanisms for determining the price of a thing, but prices do not necessarily reflect value, they are simply a mechanism for attempting to convert value into something that can be exchanged. In order to understand value, we really need to think about a concept called utility.

Utility is often confused with usefulness, but this is an oversimplification. The idea of utility is more connected to personal satisfaction. When a person eats a hamburger, they may derive a great amount of satisfaction from the experience, even if they weren't hungry. Likewise, an automatic dog walker might be useful, but for a person that derives pleasure from walking their dog every day, would not be worthwhile.

When economists talk about utility, what they mean is the amount of satisfaction that an individual gets from something. Naturally, the personal nature of this idea makes it very hard to measure. For many things we can assess utility by looking at price. It is generally assumed that people are willing to pay more for things that make them happier, and are less likely to pay for things that don't. So, we assume that if more people are willing to pay $10 for a meal at Paco's Meat Shack, but only willing to pay $3 for a meal at Dan's House of Tofu, that people, in general, derive more utility from Paco's.

But this leaves a lot of questions lingering in the air. For instance, how do we figure out the value of things that do not have price tags, such as a mountain view or clean air? How do we come up with a fair price for things that we share (such as parks or roads) but that some people derive more utility from than others? What happens when our ability to use a something (such as a trail or a bicycle path) prevents someone else from using it, or vice versa?

These are among the bigger questions that this Wiki attempts to answer. By taking an economic approach to Parks and Recreation, we hope to make better, fairer decisions for ourselves and our communities.

Incentives and Behaviors


The final factor that every student of economics is expected to take into account is the one that is forever present, though often overlooked - human nature. While human beings often behave in ways which we find hard to fathom, there is are two things that we generally accept as true:

1. Human beings have the capacity for rational behavior.

In other words, while people might behave irrationally on occasion, in general, people are reasonable. Most people will not suddenly decide to burn all of their money and go live with the elk. Given the choice between two products, we will choose the one that gives us the best value for the money we want to spend.

2. Human beings respond to incentives.

All things being equal, human beings will seek out rewards and avoid punishments. This is particularly critical to remember whenever discussing policy. For instance, if a city puts a registration fee on bicycles, many people will stop riding their bicycles. If a city gives a tax credit for having a tree in your front yard, many people will choose to have tress in their front yard. The amount of the response is proportional to the amount of the incentive, of course.

The reason that these things are important should be obvious. Every choice we make must necessarily be informed by the likely outcomes, or else we risk unintended consequences. A good example of this occurred in the 1990s when the U.S. government levied a "yacht tax" in an effort to raise taxes on the rich, who are much more likely buy yachts than the rest of us. This tax raised the price of yachts substantially, but instead of paying the tax to buy the yacht, wealthy people responded to the negative incentive, and stopped buying boats. As a result, the people who made yachts began losing money, resulting in layoffs and cutbacks. In the end, this tax hurt middle class workers more than the wealthy, all because of a failure to understand the likely consequences of the policy.

While much of this reasoning can get quite complicated, the key is to keep these ideas in mind as you use this site, and even as you go about your daily life. More than crunching numbers or building complex models, the economic way of thinking is about applying this simple set of core ideas to the world around you, so that the choices you make can be beneficial to you and those around you!