Basic Economic Concepts Unit One: Basic Economic Concepts

I. Individual Choice Economics: The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human economic wants. Economics: study of scarcity and choice Every economic issue at its most basic level involves individual choice.

A. Resources are Scarce Resources: anything that can be used to produce a good or service Factors of Production Labor Ex. Grocery store clerk, lumberjack, etc. Land Ex. Earth, water, minerals, timber, etc. Capital (Physical and Human) Ex. machinery, tools, skills Entrepreneurship Ex. Innovation and risk taking by people like Mark Zuckerberg Scarcity: means “of limited amount”; different than shortage (which is temporary) Resources are more than their colloquial definition FOP Labor: all human attributes that are productive Land: all natural resources Capital: productive equipment or machinery (human/ physical) Entrepreneurship not counted by all economists http://yadayadayadaecon.com/clip/54/ Economic resources are limited therefore, so are goods/services. Scarcity requires that choices have to be made and that some opportunities are given up High level of scarcity: gold, oil, platinum Low Level of scarcity: water, rocks, dirt Local example: school parking; if we didn’t purchase more land, what would be sacrificed? National example: hydroelectric dam; resources could have been used for something else; give up resources that could have been used by an undammed river (whitewater rafting) Free-stuff: those resources could have been used elsewhere in society

B. Opportunity Cost Opportunity Cost: the real cost of something is what you must give up to get it. Ex. Time spent studying vs. time spent socializing Marginal analysis: decisions based upon the benefit and cost of adding one more unit Ex. Should I study one more hour and still have some free time In Macro this looks more like the sacrifices countries must make in production Opportunity cost is what must be given up in a trade-off (it’s the next best alternative) Calculate opportunity cost next lesson Ex. Buying a digital camera; OC is the $100 and what you could have bought other than the camera Ex. Playing football or cheerleading; cannot do both during the fall What might this look like on an international level? Domestic goods or military goods for example? Marginal Analysis: varying degrees of using resources

II. Micro and Macroeconomics Microeconomics: concerned with how individuals make decisions and how these decisions interact. Choices made by individuals, households, or firms Macroeconomics: studies the overall ups and downs of the economy Focuses on economic aggregates Ex. Unemployment, inflation, and GDP Macroeconomics also worries about issues like national defense spending, taxes, and the money supply

Positive and Normative Economics Positive Economics: analysis used to answer questions about the way the world works. Statements of “what is” or “what will be.” No value judgements are applied Normative Economics: analysis that involves saying how the world should work. Statements of “what should be.” Judgements of what is “right,” “wrong,” or “best.” Positive Economics: Freakonomics https://www.youtube.com/watch?v=goGe0CbARDE Normative Economics: Robert Reich https://www.youtube.com/watch?v=6xtOZjSju1E There is always bias, even using the scientific method There is always a degree of normative economics at work