Nature and Methods of Economics: The Study of Economics Fall 2013

Scarcity and Choice  Scarcity simply means that there isn’t enough of something to satisfy all of society’s wants/needs for it  Economics is the study of scarcity and choice  Economies coordinate choices about production with choices about consumption  Three basic economic questions must be addressed in all societies: 1. What to produce? 2. How to produce? 3. For whom to produce?

Pair and Share  What are some things that are scarce?  What are the two basic types of economies?  How are decisions made in each?

Four Categories of Resources  A resource (factor of production) is anything that can be used to produce something else  What kinds of things are needed to produce goods and services?

LAND

LABOR

CAPITAL

ENTREPRENEURSHIP

Pair and Share  Who decides how society uses resources?

Opportunity Cost  Opportunity Cost is what you must give up when you make a choice – money, time, etc., spent on one thing can’t be spent on another  EVERY cost is opportunity cost and it includes EVERYTHING you give up

Pair and Share  Consider something you bought or did in this last week. What were its opportunity costs?  What is the opportunity cost of going to college and the opportunity cost of not going?

Micro- versus Macro-  Microeconomics is concerned with individual decisions (people, households, and firms)  Macroeconomics is concerned with the “big picture” questions (behavior of the economy, int’l markets, govt policy)  Macroeconomics focuses on economic aggregates, measures that summarize data for the economy as a whole

Pair and Share  Create one micro- and one macro- level question for each of the following categories: Micro-CategoryMacro- JOBS SALARY PRICES

Positive versus Normative  Positive Economics focus on how things ARE  Answers to these questions are FACTS  Normative Economics focus on how things SHOULD BE  Answers to these questions are OPINIONS  Most economics focuses on normative economic questions, using economic analysis to determine which policies are best

Pair and Share  Give examples of positive and normative economic questions.

Check for Understanding 1. Define resources. 2. List the four categories of resources. 3. How does scarcity impact economic decisions?