1 - 1 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Introduction to Economics

1 - 2 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Economics From the Greek word oikonomia “Management of a household”

1 - 3 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Economics The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.

1 - 4 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Economics The social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.

1 - 5 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals MICROECONOMICS... MACROECONOMICS...

1 - 6 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals 1. Scarcity –Limited –Desirable –TINSTAAFL There is no such thing as a free lunch –Because of scarcity we make choices every day The Economic Way of Thinking

1 - 7 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals 2. Rational Behavior –People make choices that will achieve their greatest satisfaction (utility). –Companies make choices to achieve their greatest profit. –This is not selfishness or greed. The Economic Way of Thinking

1 - 8 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals 3. Marginal Analysis –Marginal means “extra, additional, one more” –Comparing marginal benefits (MB) and marginal costs (MC). The Economic Way of Thinking

1 - 9 The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals The Economic Way of Thinking How do rational people act on a choice? –We act when MB is > or = to MC.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Positive Economics - What is Normative Economics - What Ought to be Ceteris Paribus “All other things equal”

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Marginal Analysis Example You have 7 hours to study HoursEcon Score Math Score

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals What is the difference between a Trade-Off and Opportunity Cost? Trade-Off All options not taken. Opportunity Cost The costs of your second best choice.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals FRIDAY NIGHT OPTIONS Go out with friends Stay home and watch TV Go on a date Study economics Go to the football game The one we pick is a choice (Date), the rest become trade-offs. The “next best” alternative becomes the Opportunity Cost.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals FRIDAY NIGHT OPTIONS Go out with friends The one we pick is a choice (Date), the rest become trade-offs. The “next best” alternative (Friends) becomes the Opportunity Cost.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals GO OUT ON A DATE The Opportunity Cost of going out on a date is what you’ve lost by not going out with friends. –Excitement –Fun –Something to tweet Your decision was based on getting more “utility” from your date.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals ANY OTHER COSTS? You could have spent that money on something else. That makes the money an opportunity cost.

The Economic Perspective Marginal Analysis Trade Offs & Opportunity Costs Types of Economics Economic Goals Is there too much of a good thing? Yes or No Yes. When we spend resources on more of a desirable good it means we have less to spend on other desirable goods because of _________. scarcity