Introduction to Economics Welcome to AP Economics!

ECONOMICS

The World & Resources People +

Why do we need Economics? Resources are SCARCE People have Unlimited Wants & Needs FORCES: 3) Society to allocate resources

Formal Definition of Economics The social science of how society allocates scarce resources among unlimited wants and needs. End of Day 1

Economics is the social science of how a society allocates their scarce resources among unlimited wants and needs. Air versus Oil

Economic Systems All economic systems allocate scarce resources Society must choose both a political & economic system

3 Types of Economic Systems MARKET COMMAND TRADITIONAL

There is NO Free Lunch Nothing is free in economics People face Trade-offs in all decision making Decisions have both: -Opportunity Costs & Opportunity Benefits -Short Run and Long Run implications

2 Types of Costs:

Marginal Analysis Economic Decisions are made at the Margin Marginal Benefit vs. Marginal Cost Value of next unit consumed or produced Rational people make decisions where MB = MC MC Price Quantity MB

Marginal Benefit Worksheet MB MC Total Earnings Total Cost High School $800,000 $0 Associate $1,200,000 $25,000 Bachelor’s $2,000,000 $100,000 Master’s $2,100,000 $200,000 Doctorate $2,500,000 $2,500,000

Should I go to college? Opportunity Benefit Opportunity Cost Trade-off Analysis Should I go to college? Opportunity Benefit Opportunity Cost Explicit Cost? Implicit Cost? Long Run? Short Run?