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?