Today’s Warm Up Pick up and complete the questionnaire at the front of the room – “Do You Think Like an Economist?”

Basic Economic Concepts Today’s LEQ: Why should we care about economics?

What is Economics? The science of scarcity - unlimited wants, limited resources Scarcity forces us to make choices Economists study how individuals and societies deal with scarcity

Comp. Check Which is more important to survival – diamonds or water? Which is more expensive and why? How much does a ticket cost for a regular season Phillies game? What about in 2008 when the Phillies made it to the World Series? In terms of scarcity, explain why the price increased.

Trade-Offs ALL decisions involve trade-offs – the alternatives we give up whenever we choose one course of action over others (There is no such thing as a free lunch!) Opportunity cost – the most desirable alternative given up i.e. sleep, study, fun example

Micro vs. Macro MICROeconomics – study of small economic units such as ind’ls, firms, industries MACROeconomics – Study of the LARGE economy as a whole or in its basic subdivisions (national economic growth, unemployment, etc.)

How is economics used? Theoretical Economics – scientific method used to make generalizations & abstractions to develop theories Policy Economics – theories applied to fix problems or meet economic goals Positive vs. Normative: Positive Statements – based on facts. Avoids value judgements (what is) Normative Statements – includes value judgements (what ought to be)

Marginal Analysis In economics, marginal = additional “Thinking on the margin” or marginal analysis involves making decisions based on the additional benefit vs. the additional cost

In Summary: Five Key Economic Assumptions Society’s wants are unlimited, but ALL resources are limited (scarcity). Due to scarcity, choices must be made. Every choice has a cost (a trade-off). Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice Real-life situations can be explained and analyzed through simplified models and graphs.

Homework – Due by Thursday Read Chapter 1 in the Mankiw text Add to your class notes as you read. Complete the AP Microeconomics Pre-Test (no stressing!)