1. What is Economics

2. Economic Choices Scarcity- a limited quantity of each given resource
Productive resources- productive resources are scarce, goods and services are scarce too
Economics-examines how people use scarce resources to satisfy their unlimited wants

3. Productive Resources Human Resources Natural Resources Capital goods
Labor
Entrepreneur
Natural Resources
Exhaustible resources- coal and oil
Renewable resources- timber, river, livestock, sun
Capital goods
Tools, trucks, machines, computer
Human creations

4. Goods and Services Goods- physical good
food, ipods, clothes
Services- intangible, not physical
Movies, lessons, tax professional
No Free Lunch- all goods and services involve a cost to someone
Pollution
If resources were not scarce you could have an unlimited supply and there would be no cost

5. Economic Theory
Economic theory- simplification of economic reality to make predictions about the world
Simplify the Problem
Simplifying assumption
All other things constant
Rational self-interest
Make best choices you can
Maximize benefit

6. Economic Theory Everybody Uses Theories Economists Tell Stories
Explain theories by explaining how the economy works
Normative Versus Positive Statements
Focus on should versus does
Normative is should
Positive is does, economic reality

7. Marginal Analysis Compare marginal cost with marginal benefit
Ex. Eating a chocolate cake costs 1000 calories, benefit is it tastes good
Marginal- incrementally, additional, extra
Choice requires time and information
Microeconomics- focuses on economic behavior of individuals and firms
Macroeconomics- focuses on the performance of the economy as a whole, especially the national economy

8. Market Participants Four types of participants Markets
Household
Product market
Resource market
Firms
Markets
Means by which buyers and sellers carry out exchange
Circular flow model

10. Opportunity cost
Opportunity cost- opportunity lost, value of alternative you passed up
Nothing better to do
No alternative more attractive
Estimate Opportunity Cost
Based on individual decision maker
“road not taken”
Opportunity Cost Varies
Depends on your alternatives
Ex. Less likely to study on Saturday than on Tuesday, there’s less to do

11. Choose among Alternatives
Calculate Opportunity Cost
Rational self interest to select most valued alternative
Make choice based on limited info
Try to do best you can to limit regret of not doing alternative
Consider your time
Time is scarce
If he does one thing he cant do another
Ignore Sunk cost
Cost already incurred and cannot recover

12. The Opportunity Cost of College
Forgone Earnings
Money you could have earned if you went to work over school
Direct Costs of College
Cost of tuition
Other College costs
Room and board
Books
Other-Things-Constant Assumption
Will you be happy in a blue color job vs white color
Do you hate school
Are you okay with forging salary for a higher one later