© 2010 Pearson Addison-Wesley

Part One: Introduction Chapter One: What is Economics? * Definition, 2 big economic questions, To Think as an Economist, Chapter Two: The Economic Problem. * PPF, Efficiency, Cost of Economic Growth.

© 2010 Pearson Addison-Wesley Several Definitions Need to Know Economics/ Macro vs. Micro What’s the 2 big questions of Economics? How to think in an economic way? Tradeoffs Opportunity Cost Marginal Cost

© 2010 Pearson Addison-Wesley What is Economics? Let’s wiki!

© 2010 Pearson Addison-Wesley Definition of Economics All economic questions arise because we want more than we can get. SCARCITY --Our inability to satisfy all our wants is called SCARCITY. *Example: Bill Gates and Warren Buffet

© 2010 Pearson Addison-Wesley Definition of Economics incentives Because we face scarcity, we must make choices. The choices we make depend on the incentives we face. INCENTIVE --An INCENTIVE is a reward that encourages an action or a penalty that discourages an action

© 2010 Pearson Addison-Wesley Incentive!

© 2010 Pearson Addison-Wesley  Economicssocial science choices scarcity incentives  Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. “Economics is the science which studies human behavior as a relationship between ends and scarce means that have alternative uses.”--- Lionel Robbins Definition of Economics

© 2010 Pearson Addison-Wesley Macroeconomics is the study of the performance of the national and global economies. Examples: *What’s the effect of tax policy for U.S. in 2009? *Why did income slow in the U.S. in 2008? What’s the trend of the inflation rate?Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. Examples: *Does the tax policy this year affect people’s shopping on grocery? *Does PapaJohn’s promote Monday Special for more profit? *Why did northwest merge with Delta and what’s the effect? *Why do we prefer drive rather than walk to school? Two Parts of Economics

© 2010 Pearson Addison-Wesley Two Big Economic Questions Two big questions summarize the scope of economics: what, how for whom 1) How do choices end up determining what, how, and for whom goods and services get produced? What ? How? For Whom?

© 2010 Pearson Addison-Wesley What 1. What goods and services are produced? What, How, and For Whom? Why?

© 2010 Pearson Addison-Wesley How 2. How are goods and services produced? What, How, and For Whom?

© 2010 Pearson Addison-Wesley factors of production Goods and services are produced by using productive resources that economists call factors of production. Factors of production are grouped into four categories: Land  Land  Labor  Capital  Entrepreneurship How?

© 2010 Pearson Addison-Wesley Factors of Production--Land Land Land--- landnatural resourcesThe “gifts of nature” that we use to produce goods and services are land. Also called natural resources. Includes minerals, oil, gas, coal, water, air, forests, and fish

© 2010 Pearson Addison-Wesley Factors of Production--Labor Labor--- labor The work time and work effort that people devote to producing goods and services is labor.—both physical and mental effort. The quality of labor depends on human capital, which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.

© 2010 Pearson Addison-Wesley A measure of the growth of human capital in the U.S. over the last century --The percentage of the population that has completed different levels of education. Factors of Production--Labor

© 2010 Pearson Addison-Wesley Factors of Production--Capital Capital Capital--- capitalThe tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services are capital. financialIncludes financial capital—money, stocks and bonds.

© 2010 Pearson Addison-Wesley Factors of Production--Entrepreneurship Entrepreneurship Entrepreneurship--- entrepreneurship The human resource that organizes land, labor, and capital is entrepreneurship