3.  Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.  The study of economics explains how productive resources are used to provide the goods and services that satisfy human wants and needs.

5.  Scarcity is the fundamental economic problem facing all societies. We have limited resources and unlimited needs and wants.  Economic wants exceed productive capacity. Resources are scarce and choices must be made.

6.  Needs: Food Shelter Clothing

7.  Human  Natural  Capital

8.  Land (natural resources)  Labor (human resources)  Capital (equipment, machinery)  Entrepreneurship(takes initiative, make decisions, innovates and takes risks.)

9.  What goods and services will be produced?  How will goods and services be produced?  Who will consume the goods and services? (How should it be shared?)

10.  Economics is considered a social science. Why?  What do economists do?  What is the difference between microeconomics and macroeconomics?

11.  Microeconomics examines decision making by individual units.  Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates.  Positive economics deals with economic facts, i.e. “the unemployment rate is 9.8%.”  Normative economics is a subjective perspective of the economy, i.e. “the unemployment rate is too high.”

12. Theories, Principles, and Models The scientific method Economic principles Generalizations Other-things-equal assumption Graphical expression Observe Formulate a hypothesisTest the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary LO2 1-11

13.  Theoretical economics helps economists use facts to analyze and explain the economy and develop policies.  Economic policies are designed to explain a number of economic goals including: economic growth, full employment, economic efficiency, price-level stability, economic freedom, equitable distribution of income, economic security and balance of trade.

14.  Trade-offs  Opportunity Cost  Production Possibilities Curve (PPC)

15.  A Production Possibilities Curve (PPC) illustrates production choices and assumes:  Full employment  Fixed resources  Fixed technology  Two goods.  Limited or fixed resources means that at any point in time, a full-employment, full production economy must sacrifice some of product X to obtain more of product Y.

16. Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES

17. Applications... Unemployment and Productive Inefficiency Tradeoffs and Opportunity Costs PRODUCTION POSSIBILITIES

18. P Q Marginal Benefit & Cost Quantity of Pizzas $15 10 5 1 2 3 Marginal Cost/Marginal Benefit Analysis MC MB Allocative Efficiency: MB=MC MB=MC

19. Economic Growth Q Q Robots (thousands) Pizzas (hundred thousands) 14 13 12 11 10 9 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 A’ B’ C’ D’ E’

20.  Technological advances  Specialization  Division of Labor  Increase in resources  Better resource quality

22. It is important to study economics for two main reasons – personal financial benefits and good citizenship… Not just because you want to pass the AP test