Chapter 1 ECONOMICS

WHY STUDY ECONOMICS VALUE OF A COLLEGE DEGREE HIGH SCHOOL GRAD’S EARN $1.2 MILLION HIGH SCHOOL GRAD’S EARN $1.2 MILLION COLLEGE GRAD’S $2.2 MIILLION COLLEGE GRAD’S $2.2 MIILLION MASTER’S $2.5 MILLION MASTER’S $2.5 MILLION DOCTOR’S, LAWYER’S, ADVANCED DEGREE’S $4.4 MILLION DOCTOR’S, LAWYER’S, ADVANCED DEGREE’S $4.4 MILLION

Definition of Economics Scarcity Not enough items to satisfy everyone’s wants Not enough items to satisfy everyone’s wants Economic Goods ( & services) Economic Goods ( & services) Anything that is scarce Free goods Free goods At zero price ($0) there is enough items to satisfy all wants Economic Bads Economic Bads Would pay more to have less of it

Definition of Economics (cont) Resources (Factors of Production) Land Land All natural resources Return => Rent Labor Labor Physical or intellectual services Return => Wages Capital Capital Machinery & Equipment Not $ (financial capital) Return => Interest

Definition of Economics (cont) Choices Economics is the study of how people choose to use their scarce resources in an attempt to satisfy their unlimited wants Economics is the study of how people choose to use their scarce resources in an attempt to satisfy their unlimited wants

Rational Self-Interest The means by which people choose the options that give them the greatest satisfaction Compare costs & benefits NOT SELFFISHNESS

The Economic Approach Positive & Normative Analysis Positive analysis Positive analysis “What is” Factual Absent value judgments Normative Analysis Normative Analysis “What ought to be” Opinions Value judgments

The Economic Approach (cont) Common Mistakes Fallacy of Composition Fallacy of Composition What applies to one applies to the many Association-Causation Fallacy Association-Causation Fallacy Two events that seem to occur together, leads to the conclusion that, one causes the other

Microeconomics & Macroeconomics Micro Level of the individual Level of the individualConsumerFirmIndustryMacro Level of the economy as a whole Level of the economy as a whole Sum of all behaviors