Chapter 1

Social science which examines how individuals, businesses, and the economy as a whole make the best choices to satisfy wants

Scarcity and Choice: Opportunity Cost

Purposeful Behavior: Utility

Marginal Analysis: Extra benefit or cost

Observations

Form a hypothesis

Test the hypothesis

Accept or reject

Continue to test the hypothesis

People respond to incentives

People think on the margin

People make rational decisions

Microeconomics: Study of decisions made by individuals and firms

Macroeconomics: Study of the economy as a whole.

Starbucks decided to change the layout of the coffee cup.

Panasonic advertises to generate demand for its electronic products.

Starting first job today, thereby lowering U.S. unemployment rate.

Taxicab drivers supply labor in return for wages.

High interest rates make paying off student loans more expensive than expected.

Drivers pay high gas prices due to U.S. dependence on foreign oil.

http://www.youtube.com/watch?v=iR6oYX1D-0w

Positive Statement: Statement of fact

Normative Statement: Statement of opinion

What is the cheapest airfare from Chicago to Dallas?

What will happen to the cost of a $100,000 loan if interest rates increase by one percent?

Should we subsidize the medical bills of low-income patients so that they can buy AIDs medication when needed?

Should firms be allowed to market products that are very helpful to some consumers but harmful to others?

What will happen to prices in the US economy if some countries decide not to purchase American made products?

Should the government make reducing unemployment its primary policy goal?

Wants: Unlimited desires

Needs: Something you have to have to survive

A curve that represents a combination of goods or services that can be purchased with a specific income

Money Income is $100. $10 for Books or $20 for a DVD.

What combination of goods could you purchase?

Economic Goal: Satisfy our wants while utilizing resources wisely

Economic Problem: Unlimited Wants with limited resources

Land: Gifts of Nature

Labor: Humans working

Human capital: Education and training

Physical capital: Property and Equipment (capital goods)

Entrepreneurial ability: The ability to work for yourself

Scarcity exists when our wants exceed our resources

Opportunity Costs: Trade-off, The next best alternative

Work Watch T.V

10 0 8 26 44 62 80 10

What is the opportunity costs of watching T.V. for eight hours?

Changes in resources and technology

Economic Growth and Economic Decay

Unemployment

Full Employment

Fixed Resources

Fixed Technology

Two Goods

Consumer Goods

Capital Goods

Straight Line: Constant opportunity costs

Bowed: Increasing opportunity costs

Increasing Opportunity costs-As production of one good increases, the opportunity cost of producing an additional good increases

Work Watch T.V

10 0 8 26 44 62 80 10

22

Is this straight line or bowed?

Movies

GAMES

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Games Movies

http://www.youtube.com/watch?v=nFY0HBkUm8o&feature=youtu.be