 Economics is defined as the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.  The study of economics explains how productive resources are used to provide the goods and services that satisfy human wants and needs.

 Scarcity is the fundamental economic problem facing all societies. We have limited resources and unlimited needs and wants.  Economic wants exceed productive capacity. Resources are scarce and choices must be made.

 Needs: Food Shelter Clothing

 Human  Natural  Capital

 Land (natural resources)  Labor (human resources)  Capital (equipment, machinery)  Entrepreneurship(takes initiative, make decisions, innovates and takes risks.)

 What goods and services will be produced?  How will goods and services be produced?  Who will consume the goods and services? (How should it be shared?)

 Economics is considered a social science. Why?  What do economists do?  What is the difference between microeconomics and macroeconomics?

 Microeconomics examines decision making by individual units.  Macroeconomics examines either the economy as a whole or its basic subdivisions or aggregates.  Positive economics deals with economic facts, i.e. “the unemployment rate is 9.8%.”  Normative economics is a subjective perspective of the economy, i.e. “the unemployment rate is too high.”

Theories, Principles, and Models The scientific method Economic principles Generalizations Other-things-equal assumption Graphical expression Observe Formulate a hypothesisTest the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary LO2 1-11

 Theoretical economics helps economists use facts to analyze and explain the economy and develop policies.  Economic policies are designed to explain a number of economic goals including: economic growth, full employment, economic efficiency, price-level stability, economic freedom, equitable distribution of income, economic security and balance of trade.

 Trade-offs  Opportunity Cost  Production Possibilities Curve (PPC)

 A Production Possibilities Curve (PPC) illustrates production choices and assumes:  Full employment  Fixed resources  Fixed technology  Two goods.  Limited or fixed resources means that at any point in time, a full-employment, full production economy must sacrifice some of product X to obtain more of product Y.

Q Q Robots (thousands) Pizzas (hundred thousands) A B C D E W Attainable but Inefficient Unattainable Attainable & Efficient PRODUCTION POSSIBILITIES

Applications... Unemployment and Productive Inefficiency Tradeoffs and Opportunity Costs PRODUCTION POSSIBILITIES

P Q Marginal Benefit & Cost Quantity of Pizzas $ Marginal Cost/Marginal Benefit Analysis MC MB Allocative Efficiency: MB=MC MB=MC

Economic Growth Q Q Robots (thousands) Pizzas (hundred thousands) A’ B’ C’ D’ E’

 Technological advances  Specialization  Division of Labor  Increase in resources  Better resource quality

It is important to study economics for two main reasons – personal financial benefits and good citizenship… Not just because you want to pass the AP test