1. What Is Economics

WHAT IS ECONOMICS?

Scarcity, Opportunity Costs, Factors of Production

Economics

The study of choices people make to satisfy their needs and limitless wants

Wants can be: goods (tangible) or services (intangible)

Microeconomics- the study of how individual firms deal with scarcity

Macroeconomics- the study of how society as a whole deals with scarcity

Key Assumptions of Economics

People Are rationally self-interested

Strive to achieve their greatest satisfaction Not the same as selfishness

Make decisions at the margin Marginal benefit vs. marginal cost

Buying an I Touch Joining a gym Studying in the library

The problem

People’s economic wants are unlimited… “I can’t get no satisfaction…” “I just can’t get enough…”BUT….

Society’s resources are scarce. UNLIMITED WANTS vs. LIMITED RESOURCES

SCARCITY

Scarcity occurs when wants exceed the availability of societal resources. Wants > Resources

MR. RESOURCES

MR. WANTS

CHOICES

We must make choices about how to use scarce resources. 4 eggs chocolate chip cookies or

brownies?

We face costs, or tradeoffs, when we make a choice.

Opportunity Costs

4 eggs Cookies

Cookies Opportunity cost

The next best alternative use for a resource. (social, emotional, monetary, jealousy)

TINSTAAFL

THERE IS NO SUCH THING AS A FREE LUNCH IN MACROECONOMICS!

LAND, LABOR, CAPITAL, and ENTREPRENEURSHIP

What are these scarce resources?

Land labor

NATURAL RESOURCES,

PAYMENT = RENT

HUMAN CAPITAL

PAYMENT = WAGES

CAPITAL ENTREPRENEURSHIP

TOOLS, MACHINES, FACTORIES

PAYMENT = INTEREST

RISK-TAKING INDIVIDUAL WHO USES FOPS TO MAKE A PROFIT

PAYMENT = PROFIT

WHAT ECONOMIC CONCEPTS ARE

DISCUSSED IN “BIG YELLOW TAXI”

Vanessa Carlton and The Counting Crows

Questions to Consider

What could you be doing instead of being in class?

What is your opportunity cost for taking summer school this summer?

What is the opportunity cost of studying one hour of Economics?