The Economic Way of Thinking Dr. T. D. Mitchell Bonneville High School, Idaho Falls, Idaho

Scarcity: The Basic Economic Problem Principle 1 People Have Wants Principle 2 Scarcity Affects Everyone Goods Services Consumer Producer Economics: Concepts and Choices, Holt McDougal

Scarcity: The Basic Economic Problem Scarcity Leads to Three Economic Questions What will be produced? How will it be produced? For whom it will be produced? Economics: Concepts and Choices, Holt McDougal

The Factors of Production LandLabor Capital Economics: Concepts and Choices, Holt McDougal Entrepreneurship

Economic Choices: Opportunity Cost Economics: Concepts and Choices, Holt McDougal Making Choices Incentives Utility Economize Factors that help you make an economic choice: 1.Motivations for choice 2.No Free Lunch

Trade-Offs and Opportunity Cost Economics: Concepts and Choices, Holt McDougal Making Trade-Offs Counting the Opportunity Costs Analyzing Choices Marginal Cost Marginal Benefits

Analyzing Production Possibilities Economics: Concepts and Choices, Holt McDougal Economic Models Production Possibilities Curve (Frontier) Assumption Resources are fixed All resources are fully employed Technology is fixed

Review: Production Possibilities Curve Economics: Concepts and Choices, Holt McDougal

What We Learn from PPCs Economics: Concepts and Choices, Holt McDougal Efficiency Underutilization Law of increasing opportunities costs Guns and Butter

Changing Production Possibilities Economics: Concepts and Choices, Holt McDougal

More on the PPC Economics: Concepts and Choices, Holt McDougal

Economists Toolbox Economics: Concepts and Choices, Holt McDougal Statistics Using economic models Charts and tables Using Graphs

Economists Study Economics: Concepts and Choices, Holt McDougal Macroeconomics The study of the whole economy Microeconomics The study of the individual consumer Units of Study  Economic Growth  Economic Stability  International Trade  Consumer Markets  Business Markets  Labor Markets Topics of interestTopics of Interest  Money, Banking, finance  Government Taxing and Spending Policies  Employment and unemployment  Inflation  Markets, prices, costs, profits, Competition, Government Regulations  Consumer Behavior  Business Behavior

Positive and Normative Economics Positive Economics A way of describing and explaining economics as it is, not as it should be. Involves verifiable facts, not value judgments. Normative Economics A way of describing and explaining what economic behavior ought to be, not what it actually is. Does not involve value judgments because it seeks to make recommendations for action. Economics: Concepts and Choices, Holt McDougal

Adam Smith: Founder of Modern Economics  250 Years ago, economics did not exist as an academic discipline.  In 1776, Adam Smith changed all this.  Born in Scotland, studied literature, logic, and moral philosophy.  Wrote Wealth of Nations in ‐Economic self-interest ‐The invisible hand ‐Became the foundation of modern economics Economics: Concepts and Choices, Holt McDougal