Introduction What is economics?

Definition of Economics All economics questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity. Scarcity arises because resources are limited.

Definition of Economics All economics questions arise because we want more than we can get. Our inability to satisfy all our wants is called scarcity. Scarcity arises because resources are limited. There is only so much oil that be produced each day. There is only so much food that can be grown each year. There are only 24 hours in day.

Definition of Economics Economics is the social science that studies how society deals with scarcity. What is the best use of limited resources? How can we get more use from these resources? Who should get these resources? Since resources are scarce, choices must be made how to best use those resources. To use a resource for one activity means it cannot be used for another – a choice must be made.

Two Areas of Economics Economics can be split into two primary areas: Microeconomics Study of the choices that individuals, households or businesses make when faced with scarcity. Usually concerns issues surrounding efficiency and allocation of resources. Macroeconomics Study of the performance of the national and global economy as a whole. Usually concerns issues regarding growth and stability.

Economics As A Science Economics is a social science Along with psychology and sociology Tries to discover how the economic world works It follows the general scientific method Form a hypothesis, make observations, test the hypothesis, etc. Model Building Used for understanding and forecasting Example: The Supply & Demand Model (Note: The overwhelming majority of the class is dedicated to learning the economic models)

Economics As A Science Economic models look at each piece “ceteris paribus” Ceteris Paribus – “everything else held constant” When using the models we imagine what would happen if only one factor changed and we hold the other factors constant.

Economics As A Science “ceteris paribus” example How much should Mike be making compared to the rest of the group? Wages Years of Education Years of Experience Location Eddie $40,000 2 4 Charlotte Alex $70,000 10 New York Dave $55,000 5 6 Salt Lake City Mike ?????? 3 Chicago

Economics As A Science “ceteris paribus” example How much should Mike be making compared to the rest of the group? Wages Years of Education Years of Experience Location Eddie $40,000 4 Charlotte Alex $70,000 10 Dave $55,000 6 Mike ?????? 3

Economics As A Science Economic models look at the “positive” world – not the “normative” world. Positive Statements describe the world “as is.” Unemployment is currently 8.6% The national debt is currently 1.4 trillion dollars Minimum wages cause some unemployment Normative Statements describe the world “as it ought to be.” 8.6% unemployment is too high 1.4 trillion dollars of debt isn’t enough Everyone needs to have at least a wage of $15 an hour