Chapter 1

Definition of Economics
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

Scientific Method
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.

Macro and Micro concepts

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 10 8 6 4 2 0

Watch T.V 0 2 4 6 8 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 10 8 6 4 2 0

Watch T.V 0 2 4 6 8 10 2 2

Is this straight line or bowed?

Games Movies 0 1 2 3 4 4.6 5 4 3.8 3.5 3 2 1 0

G A M E S

Movies

What economic concepts are found in this clip?

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