Economics: The Science of Everyday Life Chapter 1 Economics: The Science of Everyday Life

Opportunity Cost Economics is the science of scarcity What was scarcity? Because of scarcity we must make CHOICES Choices lead to opportunity cost. the most desired alternative you have foregone to obtain a good or service, or undertake an activity.

Cost–Benefit Analysis How do you decide which CHOICE to make? Weigh the costs and the benefits Marginal analysis is a method of comparing the costs and benefits of the last unit of an activity. Marginal cost is the cost of consuming or producing an additional unit. Marginal benefit is the benefit associated with consuming or producing an additional unit.

Economic Models: What is this? Tools to understand, explain and predict economic actions. Simplify assumptions to focus on a specific aspect of an economic relationship Ceteris paribus assumption to hold “all else equal” when evaluating changes in causal factors

Chapter One Homework Numbers 4, 6, and 8

Graphing and Algebra Review Appendix for Chapter 1 Graphing and Algebra Review

Variables Variables are letters or symbols used to represent economic concepts. Examples: P for price and Q for quantity Variables can be: Dependent  depends on another variable Independent  value depends only on itself

Figure 1A.1 The Relationship Between Hours Studied and Exam Score

Equations of Straight Lines The basic form of a linear equation: m = the slope; b =the y-intercept

Which is which? Which is the independent variable? X Which is the dependent variable? Y

Figure 1A.2 SLOPE: The Relationship Between Passengers and Gasoline Consumption

Figure 1A.3 Graphing an Inverse Relationship Between Dependent and Independent Variables

Figure 1A.4 The Effect of a Change in Intercept on the Curve