1. Economics Defined
The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human wants and needs.
Wants are unlimited
Resources are limited so satisfying wants can be a problem

2. Perspectives in Economics
Scarcity and choice
Resources can only be used for one purpose at a time
Scarcity thus requires that choices must be made
The cost of any good, service, or activity is the value of what must be given up to get it. This is opportunity cost. This is a most important concept which we will refer to over and over.

3. Rational Behavior
Rational self interest means you make decisions to achieve the maximum fulfillment of your goals
Different preferences (personal wants and needs) and circumstance lead to different choices for individuals
Rational self interest is not to be equated with selfishness although an argument could be made to do so. (Also known as the invisible hand)

4. Marginalism: How much wood..
In economics marginalism refers to extra. If you talk about marginal benefit or marginal cost you are talking about extra or added to the original.
Most decisions concern a change in current conditions: so the focus of choice is based on marginal analysis or is the benefit of the choice greater than the cost of the choice. This is true for each additional choice involved with this decision.

5. Marginalism Economics uses certain short cuts to refer to marginalism:
MB= marginal benefit. That is the added benefit one receives for making or doing a particular thing.
MC= marginal cost. That is the added cost one receives for making or doing a particular thing.

6. Marginalism cont.
This applies to individuals, firms, and government. The principle is the same.
If the marginal cost of an action or decision exceeds the marginal benefit then it should not be done or chosen.
TINSTAAFL-this is no such thing as a free lunch. Learn this acronym!!!!!!
Let’s look at this to see if it is true.

7. Methodology of the Science of Economics
Observation
Formulation of explanations for the cause and effect relationships(hypotheses)
Testing hypotheses
Accepting, rejecting, or modifying the hypotheses

8. continued Many economic principles are embodied in Theories Laws
Models
You can usually tell who has studied economics too long because they have a law named after them.

9. Ceteris Paribus
This assumption is all important when working with assumptions and information in economics. Essentially, what it means is “ all other things being equal” or “we are going to keep all factors the same except one which we are going to change” and see what happens.
In most circumstances only ONE condition is changed at a time allowing us to look at its effect. If asked for then another condition would change and we would do the same thing.

10. Theoretical versus Policy
Theory economics is intellectual and academic. It is used to test abstractions and connections of hypotheses, models, usually in the most simple way. In this economics models scientific experiment.

11. Policy Economics
Policy economics uses economic facts and principles to resolve specific problems and achieve certain goals in a specific economic function.

12. Formulating Policy State goals for policy
Recognize options that may be used to achieve goals
Evaluate the options on the basis of criteria specific and important to those who are in power. (decision makers)

13. Economic Goals common to Western Capitalist Democracies
Economic growth
Full Employment (low unemployment)
Economic Efficiency
Price Level Stability (low inflation)
Economic Freedom
Equitable Distribution of Income
Economic Security
Economic Justice

14. Issues with goals Some are contradictory Some are complementary
Some are wishes and unfulfillable
Not all goals can be attained at the same time or with the scarce resources we have so choices must be made

15. There are two schools of economics
Macroeconomics is the study of the economy as a whole by looking at large segments known as aggregates such as GDP, unemployment, inflation, etc.
Microeconomics is the study of specific economic units such as households, firms, and specific markets and products

16. Positive and normative
Positive economics describes the economy as it actually is, avoids value judgment and bias, and attempts to establish scientific statements about economic behavior.
Normative economics involves value judgments and bias in which the economy is seen as it SHOULD be according to the perspective of that person and what needs to be done to get it to that point. Most political economic statements are normative.

17. Pitfalls for economic students
Bias and preconceptions should be limited
Loaded terminology enhances bias and should be used as little as possible.
Not knowing the correct economic language to use. Terms are important and should be learned as appropriate.
Fallacies: Post Hoc Fallacy and Correlation versus Causation. I will give examples.