AP Microeconomics: An Introduction Spring Semester 2018 Rixie

The Economic Perspective The SCARCITY of resources necessitates CHOICE We can’t have it all.

What is economics? “The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants” A society must ask itself how best to accomplish this Not a natural science, but scientific method is used Hypotheses, theories, models, generalizations

Microeconomics vs. Macroeconomics Looks at the details of specific economic units Studies an individual industry, firm, or household “The trees” Macro: Examines the economy as a whole Looks at collections of specific economic units “The forest”

Positive vs. Normative Economics Looks at desirability of certain aspects of the economy Incorporates value judgments regarding policy actions “What ought to be” Positive: Focuses on facts and descriptions Avoids value-judgments Science-based “What is”

Assumptions of Economists There is no such thing as a free lunch (There is always some cost to society) We have scarce resources and unlimited wants Humans behave rationally, in their own self-interest “Other things equal” : ceteris paribus

Utility = Satisfaction/Happiness We are always looking to increase our utility To do so, we must weigh the costs and benefits of decisions

Marginalism Marginal = extra, additional Marginal Benefit (MB) = the additional benefit of consuming one more of something Marginal Cost (MC)= the additional cost of producing one more of something You can have “too much” of a good thing

Tradeoffs & Opportunity Costs What you sacrifice in order to achieve or gain something else (what were the alternatives?) Opportunity Cost The value of the next best alternative (what was the given up alternative worth?) Not necessarily measured in $$$ Or…

Real-world application What were some tradeoffs of your decision to come to school today? What was the opportunity cost? What were some tradeoffs of your decision to attend high school at Douglas Anderson? The opportunity cost?

Classwork: Writing Assignment Reflect on and write about the following questions: Have you already made a decision regarding what you will do after high school? If so, what have you decided, and what are the benefits and costs of your decision? What are the alternatives, and what is the opportunity cost (value of the next best alternative)? If you haven’t decided, pick a potential choice and discuss the benefits, costs, alternatives, and opportunity cost of this choice. Due next class May be handwritten or typed Be thorough and thoughtful Aim for at least a page