1 Limits, Alternatives, and Choices McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

LO1 Introduction Economics defined: Economic wants exceed productive capacity. Use resources efficiently to maximize fulfillment of unlimited wants.

LO1 The Economic Perspective Key features: Scarcity and choice Purposeful Behavior Marginal Analysis

LO1 Scarcity and Choice Resources are scarce Choices must be made Opportunity cost There’s no free lunch

LO1 Purposeful Behavior Rational self-interest Utility Desired outcomes

LO1 Marginal Analysis Compare marginal benefit and marginal cost Marginal means “extra”

LO2 Theories, Principles, and Models Economic principles and theories Generalizations, so imprecise Ceteris Paribus: Other-things- equal assumption Statements of economic behavior supported by facts

LO3 Microeconomics and Macroeconomics Microeconomics Decision making by individual units Macroeconomics Aggregate, total

LO3 Positive and Normative Economics Positive economics Deals with economic facts Normative economics Subjective perspective of economy

LO4 Society’s Economizing Problem Scarce resources – inputs used to produce other goods and services Land – natural resources Labor – most workers Capital – manufactured inputs Not money Investment – spending on production & accumulation of capital

LO4 Society’s Economizing Problem Entrepreneurial ability Takes initiative Decision maker Innovator Takes risk Key to economic growth