What do economists do? Focus on Human Behaviors (choices, risk taking, producing, and consuming) -Interpret/analyze facts into theories and laws used to solve economic problems and predict business cycles.

Economists TOOL KIT: Statistics, Tables and Graphs Graphs: How 2 variables relate Independent Not affected by other variables Does NOT “depend” on values of the other variable Horizontal Axis Dependent Depends on the value of the independent variable Vertical Axis x

Choices People choose using: Choices involve: Rational Self-Interest People choose most rational choice Choose option giving them greatest satisfaction In a competitive economy consumers and producers acting in their own self interest will improve public welfare Choices involve: OPPORTUNITY COSTS: Highest valued alternative that must be forgone when a choice is made (must give up to gain). x

POSITIVE ECONOMICS: NORMATIVE ECONOMICS: Focuses on what is NOT what ought to be. Facts Cause and effect relationship NORMATIVE ECONOMICS: Focuses on what ought to be. Ethics/value judgments Cannot be answered w/ facts alone No right or wrong EX: Government Spending VS.

Diamond-Water Paradox Some: Necessities have low monetary value Non-necessities have high value ____________________ Scarcity creates value + Utility: Usefulness/Satisfaction (benefit of a good or service) Diamonds: scarce + have value Water: not as scarce - given less value

Utility Total Utility: maximum satisfaction you can derive. Marginal: Winning a free concert ticket Costs: Benefits: Marginal: One more unit of something. Marginal Utility: Additional benefit derived from consuming something in a given period of time. If marginal benefits > the marginal costs You’ll consume Until marginal benefit = marginal cost Ex: Pizza-by-the-slice: you no longer get satisfaction out of purchasing another.

LAW OF DIMINISHING MARGINAL UTILITY Marginal benefit tends to decline from each additional unit consumed. As benefits/satisfaction from 1 alternative decrease Chooser will select to stop No longer total utility Anticipate what people will choose “All you can eat” Continue to consume as long as: Marginal benefit gained is = to or greater than total cost of each unit MU is greater than MU of another Examples: Personal “Pizza” Business “Workers” x

MACRO Looking at the WHOLE: MACROECONOMICS Study of behavior of the economy as a whole How major sectors interact (govt and industry) FOCUS: Large Scale NATIONAL or GLOBAL perspectives

MICRO Looking at the Parts: MICROECONOMICS Study of specific factors in the economy Focus: Individual Players and Business’s Supply/Demand, Price, Costs, Profit, Competition, and Consumer Behavior