1. ECONOMICS : CHAPTER 1 – WHAT IS ECONOMICS?
ECONOMICS: choices
How do people satisfy their unlimited wants with limited resources

2. not enough productive resources to satisfy unlimited wants
ECONOMIC PROBLEM
SCARCITY:
not enough productive resources to satisfy unlimited wants
WITH NO SCARCITY THERE WOULD BE NO ECONOMIC PROBLEM

3. PRODUCTIVE RESOURCES The inputs that produce goods and services
ALSO KNOWN AS
FACTORS OF PRODUCTION, INPUTS, RESOURCES
THREE CATEGORIES

4. HUMAN RESOURCES
Human efforts (mental and physical) used to produces goods and services.
Labor: most important human resource
Comes from human resource: time
Sell time for wage
What else could you do with your time?

5. HUMAN RESOURCES, cont. Entrepreneur: specific human resource
A person who tries to earn a profit by providing new goods and/or services.
Profit = Revenue from sales – Cost of production
Assumes risk of business success or failure

6. NATURAL RESOURCES “Gifts of nature” TWO CATEGORIES LAND FORESTS
MINERALS
OIL RESERVES
BODIES OF WATER
ANIMALS
TWO CATEGORIES

7. RENEWABLE RESOURCES Can draw on indefinitely TIMBER -- FORESTS
AIR GROUNDWATER
RIVERS GRASSLANDS
FISH --AGRICULTURAL SOIL
GAME LIVESTOCK

8. EXHAUSTIBLE RESOURCES
RUN OUT –LIMITED SUPPLY
OIL
COAL
MOST MINERALS

9. CAPITAL RESOURCES ALSO CALLED: CAPITAL GOODS
All human creations used to produces goods and services.
FACTORIES -- TRUCKS
MACHINES -- TOOLS
BUILDINGS -- AIRPORTS
HIGHWAYS
CLASSROOM, TAXI CAB, TRACTOR

10. GOODS TANGIBLE Any item you can see, feel, touch
Requires scarce resources to produce
Satisfies human wants.

11. SERVICES INTANGIBLE Not physical
Uses scarce resources to produce and satisfy wants and needs

12. TINSTAAFL
THERE IS NO SUCH THING AS A FREE LUNCH ALL GOODS AND SERVICES INVOLVE COST TO SOMEONE

13. ECONOMIC THEORY
Makes Predictions about the real world. Simplifies the problem Simplifies assumptions: other-thing-constant, behavioral assumptions, Rational Self-Interest: You make choices that you think are best for you. You still have concern for others. Your interest is first.

14. Theory, cont. Normative v. Positive statements
Normative: opinion: Your grade should be pretty good or You may fail the class
Positive: reality: Your grade is 98% or Your grade is 50%

15. MARGINAL ANALYSIS Marginal: incremental: change in the status quo
“A rational decision maker will change the status quo as long as the expected marginal benefit from the change exceeds the expected marginal cost.” Is it worth it

16. Market Economics MICROECONOMICS
Focus on economic behavior in a specific market
What factors influence individual economic choices.

17. NATIONAL ECONOMICS MACROECONOMICS
Focus on the performance of the market as a whole.

18. MARKETS: How buyers and sellers exchange goods and services
PARTICIPANTS Households: most important. Demand the goods and services provided Firms Governments The rest of the world demand resources households supply and use them to supply goods and services.

19. CIRCULAR-FLOW MODEL How resources, products, income, and revenue flows
Resource market
Product market

20. Opportunity Cost Value of the next best choice you gave up
Not all choices just the next best.
Only individual can decide
Varies depending on choices

21. Calculating OC Not all choices turn out to be the best Time
Ignore sunk cost: a cost you have incurred and can’t get back