Morning Session Homework #1  Chapter 1 Question 1: Tracy Bertagnole Question 2: Anthony Juarez Alternates: Marisela Enciso and Corbyn Ladd MAKE SURE TO PUT YOUR NUMBER NOT YOUR NAME ON YOUR HOMEWORK!! ALSO PUT YOUR NUMBER ON THE PAPER YOU ARE GRADING!!

Afternoon Session Homework #1  Chapter 1 Question 1: Clinton Huff Question 2: Lizbeth Medina Alternates: Carly Elder and Sophie Laureano MAKE SURE TO PUT YOUR NUMBER NOT YOUR NAME ON YOUR HOMEWORK!! ALSO PUT YOUR NUMBER ON THE PAPER YOU ARE GRADING!!

Chapter 1 What is Economics About

Beginning to Think Like an Economist …is this a good thing?

Defining Economic Goods  Utility Satisfaction you receive from consuming a product Good vs. Bad  Tangibility Can the good be touched or is it a service?

Defining Economic Goods  Resources or factors of production used Land: natural resources Labor: Physical and mental talents of people Capital: produced goods that can be used as inputs for further production Entrepreneurship: talent of organizing resources, seeking new opportunities, and developing new ways of doing things

Remember Scarcity Runs the Show…  What was scarcity??  So…how do we make sure that only those who REALLY need the good get it??  Prices System of rationing of the good Cause people to compete for the item

Opportunity Cost  Value of the next best alternative foregone  Pizza vs CD Pizza for $1.00 per slice; CD for $15.00  Revolutionary War The British and their red coats

Opportunity Cost  Big Macs Big Macs in Japan cost $8.25  Highway System Paid for with taxes

Summary Statement of Scarcity and Related Concepts

Costs and Benefits at the Margin  What is the margin?? The “last” or “additional”  Marginal Cost The cost of the “last” unit employed  Marginal Benefits The benefit of the “last” unit employed  Unintended effects Minimum wage Gun bounties Seat belts

Efficiency  What is the “right amount” of time to study? Right amount = optimal or efficient amount Marginal Costs = Marginal Benefits

Economic way of thinking includes…  Analyzing scarcity  Look at opportunity cost of decisions  Measure costs and benefits  Look at marginal effects  Examine unintended effects

Economic Thinking Errors  Association vs. Causation You hit red lights because you are running late Don’t study for a test so you fail  Fallacy of Composition What is good for the individual is good for the group  Forgetting Ceteris Paribus All else remains constant

What is this?

Model  Simplified version of reality Includes only the “important” aspects  Why is a model necessary??

Parts of a Theory  Variables Magnitudes that can change  Assumptions Ideas about event that will not allow to change  Hypothesis Educated guess  Predictions Based on hypothesis and assumptions

Scientific Approach  What do you want to predict/explain?  What variables are important?  State assumptions  State hypothesis  Test  If results are good…Yeah You!!  If results are bad…amend or reject theory

Building and Testing a Theory

How do we judge theories?  Look at how well they predict  NOT by the assumptions  Example: Firms try to maximize profits Do they think about this every second? Probably not Over the course of the year…make decisions to maximize profits