1. What is Economics ? “Economics is the study of mankind in the everyday business of life.” Alfred Marshall (1842 -1924)

2. Economics is the study of choices made by people who are faced with scarcity. *Scarcity is a situation in which resources are limited and have alternative uses. What Is Economics ?

3. GOODS WORK CHOICES

4. ECONOMIC QUESTIONS What goods and services do we produce ? How do we produce these goods and services ? Who consumes the goods and services produced ?

5. SCARCITY AND PRODUCTION POSSIBILITY CURVES Production Possibility Curve A visual representation of tradeoffs that arise in an economy that produces two goods. A picture of the choices which can be made when considering the production of two goods.

6. PRODUCTION POSSIBILITY CURVE (FRONTIER) A production possibility curve shows how all of an economies available RESOURCES can be used to produce various combinations of goods and services.

7. WHAT ARE RESOURCES? Labor -- human effort used to produce Physical capital -- machines, buildings equipment Human Capital -- knowledge and skills acquired by workers Natural Resources (LAND) -- things created by acts of nature and used to produce

8. Y X Thousandsofcomputers per year Number of Space Missions Per Year 380 4 e 300 5 f PRODUCTION POSSIBILITY CURVE 200 2 i (inferior) (idle resources) ATTAINABLE UNATTAINABLE GRAPHING POSSIBILITIES

9. SCARCITY The limit to available resources; Illustrated by the envelope of the production possibility curve. To obtain more of one of the two choices, one must give up more of the other choice.

10. MACROECONOMICS vs MICROECONOMICS

11. THE STUDY OF: (MICROECONOMICS) choices made by individual consumers and firms & how these decisions affect the market for a particular good or service. (MACROECONOMICS) The nations economy as a whole. Issues include: –unemployment –inflation –budget deficit –trade deficit

12. MICROECONOMIC ANALYSIS We use microeconomic analysis To understand how markets work To make personal or managerial decisions To evaluate merits of public choices

13. MARKET An arrangement which allows buyers and sellers to exchange money and goods.An arrangement which allows buyers and sellers to exchange money and goods.

14. THE ECONOMIC WAY OF THINKING John Maynard Keynes “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of mind, a technique of thinking which helps its processor to draw correct conclusions.”

15. SIMPLIFYING ASSUMPTIONS (Eliminate Irrelevant Detail) 1. People act on the basis of self interest. 2.People make informed decisions based on information from: a) Producer; b) Government.

16. GIVEN : My income doesn’t change; No other major expense occurs; I don’t suffer a major illness or injury; etc..... I should be able to buy the new stereo I would like to own.

17. EXPLORING THE RELATIONSHIP BETWEEN TWO VARIABLES Variable -- A measure of something that can take on different values.

18. EXPLORING THE RELATIONSHIP BETWEEN TWO VARIABLES CETERIS PARABUS Other things being equal to what they were before: Other variables remain fixed.

19. GRAPHING Economists use this in a two dimensional form as a way of showing the relationship between two variables.

20. Y X variable 2 variable 1 5 1010 1515 20 25 3030 35 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 QUANTITY (HOURS WORKED) QUANTITYQUANTITY WEEKLY INCOME $20 Weekly Allowance (No hours worked) b a c d change in weekly allowance $15 BASIC GRAPHING

21. Y X variable 2 variable 1 5 1010 1515 20 25 3030 35 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 QUANTITY (HOURS WORKED) QUANTITYQUANTITY WEEKLY INCOME $20 Weekly Allowance (No hours worked) b a c d change in weekly allowance $15 z y x BASIC GRAPHING

22. Graphing allows us to think in a marginal way Marginal - How much of a change occurs in one variable for a specific incremental change in the other variable. How much of a change occurs in income for an additional hour worked.

23. Y X INCOME HOURS WORKED 108 60 1022 SHOWING THE SLOPE

24. SLOPE Change in the vertical-axis variable for a given change in the horizontal-axis variable. Change in income for a given change in hours worked. Rise ÷Run

25. Y X INCOME HOURS WORKED 108 60 1022 RUN RISE SHOWING THE SLOPE