An introduction to economics Unit 1 1.Explain the definition of economics. 2.What is the difference between macro- and micro-economics? 3.Why does scarcity matter so much to us? 4.What is a market? Why is what is available in a market key to understanding economics?

What is an economy? “An economy is a system used to manage limited resources for the production, distribution, and consumption of goods and services…” p. 3 So what? Everyone, from individuals to governments, make decisions that influence their economic system.

What is economics? “Economics is the study of how society chooses to use its scarce resources for the production of goods and services to satisfy unlimited wants…” p. 3 So what? Economics is the study of choice. Resources are anything used to produce an economic good or service. What gets produced with resources What consumers (can) buy, businesses sell

Why do we study economics? Society makes two kinds of choices: macro (large) and micro (small). (video)video Macroeconomics—the study of decisions for the economy as a whole –Nationwide decisions, “big picture” decisions –All goods/services exchanged in an economy Microeconomics—the study of decisions by parts of the economy –Individuals, families, businesses –Consumers and producers’ demand and supply of a particular product

Where do economics play out? A market is any place or method used by buyers and sellers to exhange goods and services. The U.S. is a free market, where consumers and businesses buy/sell products with little government restriction Also called “free enterprise system” –Individuals sell labor, businesses sell products to make a profit, consumers buy/not buy –Consumers and businesses benefit from exchange in free market

Economics: what is vs. what should be Economists spend most of their time thinking about how things are and why. Sometimes, they think about what should be. Positive economics—an analysis of an economic situation that describes how things are, using hard facts from the present. –Most economists’ main activity Normative economics—an analysis that focuses on how things ought to be, using facts and possible choices and their impacts –Policy advisers to government officials Video!

#1 Principle of Economics Scarcity forces trade-offs. We have unlimited wants, but limited resources—causes a scarcity. When you have to choose one thing over another because of this, you make a trade-off. –Called the scarcity-forces-trade-offs principle (“no free lunch principle”) –Every choice involves a trade-off

Unlimited Wants Society Chooses Scarcity How does it work? The cause-and-effect chain This makes people have to choose what they will produce and buy. Unfortunately, there are limited resources to meet these wants. All people have unlimited wants. This causes the effect of scarcity.

Check yourself… Why is there no such thing as a “free lunch”? What is economics? What is the difference between micro and macro economics? Why are things scarce? What does this force us to do?