AP Economics Mr. Wyka

3 FACTS! Econ is a skills based course. Learning methodology resembles algebra more than history. You MUST complete assignments BEFORE class Class time should be about sharpening skills, rather than just introducing/reviewing concepts. Econ is a very intuitive subject, but it requires PRECISION. Many FRQ are similar to geometric proofs and cannot be “fluffed”

Unit 1: Basic Economic Concepts Length: Approx 1.5 Weeks Chapters: 1 and 2 Assignment: Problem Set #1 I WON THE LOTTERY! I’ll give you anything you want other than money. What do you want? Would your list ever end? Why not? Scarcity!!!

Economics is the study of _________. What is Economics? Economics is the science of scarcity. Scarcity means that we have unlimited wants but limited resources. Since we are unable to have everything we desire, we must make choices on how we will use our resources. Economics is the study of _________. choices In economics we will study the choices of individuals, firms, and governments.

(Study of how individuals and societies deal with ________) Examples: You must choose between buying jeans or buying shoes. Businesses must choose how many people to hire. Governments must choose how much to spend on welfare. Textbook Definition Economics- Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants. Volunteer to read the definition at the top of page 3? (Study of how individuals and societies deal with ________) scarcity

Micro vs. Macro MICROeconomics- MACROeconomics- Study of small economic units such as individuals, firms, and industries (ex: supply and demand in specific markets, production costs, labor markets, etc.) MACROeconomics- Study of the large economy as a whole or economic aggregates (ex: economic growth, government spending, inflation, unemployment, international trade etc.)

Positive vs. Normative (pg 15) How is Economics used? Economists use the scientific method to make generalizations and abstractions to develop theories. This is called theoretical economics. These theories are then applied to fix problems or meet economic goals. This is called policy economics. Positive vs. Normative (pg 15) Positive Statements- Based on facts. Avoids value judgements (what is). Normative Statements- Includes value judgements (what ought to be).

5 Key Economic Assumptions Society’s wants are unlimited, but ALL resources are limited (scarcity). (pg 2) Due to scarcity, choices must be made. Every choice has a cost (a trade-off). Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” (pg 2) Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice. (pg 12) Real-life situations can be explained and analyzed through simplified models and graphs.

Would you see the movie three times? Thinking at the Margin # Times Watching Movie Benefit Cost 1st $30 $10 2nd $15 3rd $5 Total $50 Would you see the movie three times? Notice that the total benefit is more than the total cost but you would NOT watch the movie the 3rd time.

How can we graph this? Volunteers? # Times Watching Movie Benefit Cost 1st $30 $10 2nd $15 3rd $5 Total $50

How about this example: The soda machine charges $1 for a can of pop How about this example: The soda machine charges $1 for a can of pop. The decision to buy another soda is an example of marginal analysis. If I expect to receive at least $1 in additional benefit, buying another pop is a rational decision. Let’s graph it to see where we should stop. # of Sodas per day Benefit Cost 1st $4 $1 2nd $3 3rd $2 4th 5th .50 Total $10.50 $5

Marginal Analysis In economics the term marginal = additional “Thinking on the margin”, or MARGINAL ANALYSIS involves making decisions based on the additional benefit vs. the additional cost. For Example: You have been shopping at the mall for a half hour, the additional benefit of shopping for an additional half-hour might outweigh the additional cost (the opportunity cost pg 11). After three hours, the additional benefit from staying an additional half-hour would likely be less than the additional cost.

Marginal Analysis Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home” In reality the decision making process started with “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.” The MARGINAL ANALYSIS approach to decision making is more commonly used than the “all or nothing” approach.

Marginal Analysis Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home” You will continue to do something until the marginal cost outweighs the marginal benefit. In reality the decision making process started with “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.” The MARGINAL ANALYSIS approach to decision making is more comely used than the “all or nothing” approach.

Graphs