Bell Ringer What kind of economy is the United States? Please put your homework in the bin.

Agenda/Objectives PPT – An Economic Way of Thinking What is Economics? Micro vs. Macro Positive vs. Normative What is Scarcity? What is opportunity Cost? Explicit vs. Implicit cost

An Economic Way of Thinking

What is Economics? Economics is the study of how people choose to use their limited resources to satisfy their seemingly unlimited wants. Resource: anything used to produce an economic good or service. Resources are limited, or scarce, because they exist in finite amounts. Only so many workers, minerals, machines and other resources can be used at any given time to produce goods and services.

Microeconomics Microeconomics is the study of the economy at the level of the individuals, households, and businesses. i.e. supply and demand of goods and service, pricing, consumer behavior, different types of businesses.

Macroeconomics Macroeconomics is the study of the workings of the economy as a whole. i.e. National and global economic activity – GDP, unemployment, economic growth, national debt, and international trade. Also interested in the effect of government actions on economic activity.

Positive vs Normative economics Positive: This branch of economics concerns itself with the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economic theories. i.e. What impact will increased enrollment, salary increases and rising maintenance cost have on next year’s budget? Normative: Part of economics that expresses value or normative judgements about economic fairness or what the outcome of the economy or goals of public policy ought to be. i.e. What actions should we take now to reduce expenses in order to balance next year’s budget?

What is scarcity? Scarcity is the condition that results from the fact that people have limited resources but unlimited wants. i.e. I want to go to buy a new outfit for the first day of school and a new pair of shoes but only have enough money for one. My money is my limited resource but I want both things.

What is “opportunity cost?” Opportunity cost is the value of the next best alternative that is given up when making a choice. It is a measure of what you must give up in order to get what you want. i.e. I chose the new outfit over the new pair of shoes.

Scarcity forces choices/trade-offs Limited resources force people to make choices and face trade-offs when they choose. Sometimes these choices are binary in nature. You pick either A or B. If you pick A, you do not get any B. Other times it is a question of how many of each item you choose. Decisions are based on one more or one less of some item. In this instance you can be said to be deciding at the margin. This is sometimes referred to as marginal utility.

Examples Scarcity + Opportunity cost = Trade off/choice

4 resources types used to produce goods and services in an economy Land Labor Capital (tools, machines, buildings) Entrepreneurship

Land

Labor

Capital

Entrepreneurship

Three economic questions Based on the issues of scarcity you must ask these questions. What to produce? How to produce? For whom to produce?

example The region of Tomainia is mostly rural and most people living there live close or below the poverty line. Most people in the area are either dairy farmers or work for a dairy farm. Milk is easily accessible and cheap. Tomainia is significantly much higher than the rest of the nation in regards to obesity and cavities. What is the scarcity in the example?

Explicit cost An explicit cost is a direct payment made to others in the course of running a business. Wages, rents, utility payments, and other cost for inputs are explicit cost.

Implicit cost An implicit cost refers to the opportunity cost of business decisions. An example of an implicit cost is the interest income that the owner of a business would get from his money if he were not to put it into his business.

Review of some of the terms

What is this an example of? "The price of milk should be $6 a gallon to give dairy farmers a higher living standard and to save the family farm.” Normative Economics

What is this an example of? Bob the builder owns a construction company and gives out paychecks on Friday to his employees that work for him. Explicit cost

What is this an example of? I want to live in a mansion but only make $15,000 a year. Scarcity

What is this an example of? The supply and demand for electronic goods vary based on celebrities. Microeconomics