What is Economics? ES: Demonstrate intellectual courage

HW Check! 1. What are the three types of resources? 2. What is the basic economic problem? 3. In what type of government do planners who work for the government answer the economic questions? 4. What are the 3 basic economic questions? 5. What type of economy does America have?

List 10 things you would buy if money were no object - current prices and availability apply! Identify if it’s a GOOD or SERVICE Put a next to what you need to survive. Put an next to your top two choices If you could buy only one, which would you buy?

Thinking Like an Economist Economics – The study of how people choose to use their limited resources to satisfy their unlimited wants. Economy – a system used to manage limited resources for the production, distribution and consumption of goods and services.

Economic Enigmas #1: Why does popcorn cost so much at the movies? #2: Why do prices often end in 99 cents?

Micro v. Macro Micro Economics – the study of the economy at the level of individuals, household, and businesses Ex: budgets, how to pay for college, balancing a check book ***Macro Economics – the study of the workings of the economy as a whole

1. People Choose We have unlimited wants Our resources are limited – human, natural, capital Problem: Scarcity - the higher the price of an item, the more scarce it is Solution: Choose the alternative that provides the most benefits with the least cost. Example: Should I buy a Cadillac Escalade or a Toyota Prius?

2. All Choices Involve Costs The Opportunity Cost is the next best alternative you give up when you make a choice. When we choose one thing we refuse something else at the same time. Example: When we go on vacation, should we camp or stay at a hotel?

3. People Respond to Incentives in Predictable Ways Incentives: Actions, awards, or rewards that determine the choices people make. They can be positive or negative. When incentives change people change in predictable ways! Positive incentive: a $ bonus or a rebate Negative incentive: a speeding ticket

4. Economic Systems Influence Individual Choices and Incentives People cooperate and govern their actions through both written and unwritten rules that determine how resources are allocated. The rules determine WHAT is produced, HOW it is produced, and for WHOM. As the rules change, so do choices, incentives, and behaviors Example: Landlords control the price of rental properties, except in rent-controlled areas.

5. Voluntary Trade Creates Wealth People specialize in the production of goods and services for economic gain. People trade what they produce if they can gain something from the exchange They hope to gain a higher standard of living and broader choices of goods and services. Example: Using a general contractor to renovate your house vs. a master carpenter or artist.

6. The Consequences of Choices Lie in the Future The costs and benefits of decision making appear in the future. But, sometimes our choices have unintended consequences that we are unable to predict Example: Vermont bans billboard signs, so businesses build huge sculptures like a 19 foot high farmer to attract customers.