1. The Nature & Method of Economics

2. The Economic Perspective Not just about money but rather decision making and social phenomenon Applies to all facets of life, always relevant Allows for the analysis of choices through a usually quantifiable and scientific process which produces a clear winner and loser A guide for living a productive and fulfilling life

3. The Fundamentals & The Foundation The basic problem all societies and institutions must solve is that of scarcity. Scarcity means that resources are limited and are finite. We then must choose very carefully how we utilize the resources that we have available to us. What is the most valuable resource on earth?

4. TIME=MONEY=FREEDOM Any and all misuse of time is money wasted, opportunity lost, and compromises your ability to live your life to the fullest.

5. Other Examples of Scarcity

6. Considerations and Terminology Rational Behavior – We assume people to act rationally in the process of decision making. We expect humans to make choices that are only in their best interest. The reality however is that humans let emotion often times cloud their judgment. What emotions get in the way of rational behavior?

7. Love

8. Revenge

9. Anger

10. Decision Making Economics represents a method of making decisions as through a very simple process known as Marginal Analysis. Marginal Benefit (MB) vs. Marginal Cost (MC) Marginal means “a change in condition or number” With any decision, small or large, you engage in the process of marginal analysis Does the benefit outweigh the cost? Examples?

11. Economic Methodology As with the physical sciences, Economics utilizes the scientific method to test theory and form laws and principles. Theories: Keynesian, Classical, Supply-side Laws: Law of Demand, Law of Supply Principles: Benefit, Ability to Pay (taxation)

12. Classroom vs. The Real World In the classroom we are able to hold all economic variables constant or equal except for the two variables that we are attempting to measure in terms of how they affect each other. Ceteris Paribus - Latin phrase meaning “all other things equal” The Real World does not allow this luxury

13. Accept Generalizations Economics is a social science meaning there is ambiguity in many of the laws, theories, or principles. DO NOT LOOK FOR SINGLE EXCEPTIONS Economics is not a physical science where laws are absolute such as Chemistry or Physics

14. Evolution into Real World Policy All institutions or businesses accept and adopt a variety of economic theories, laws, or principles. Policy makers (CEO’s, Presidents, Legislators, etc.) then formulate economic strategy based on their acceptance of a specific theory or principle.

15. Discussion Questions What has been the economic policy of the Obama administration in regards to government spending, taxes, and regulation of the business sector? How does this differ from that of his predecessor, George W. Bush? Were their decisions failures or successes?

16. The Goals of a Policy Maker 1. Economic Growth (GDP) 3 – 5% 2. Full Employment (Unemployment U%) 4-6% 3. Price Stability (Inflation π %) < 3% 4. Economic Efficiency (Allocative vs. Productive) 5. Economic Freedom 6.Equitable Distribution of Income (Gini Coefficient) 7.Economic Security (Ability to survive) 8.Balance of Trade Imports (M) vs. Exports (X)

17. Other Terminology Normative vs. Positive Statements Normative statements are value judgments or opinions Positive statements are fact based and generally accepted as truth Examples ?

18. Other Terminology Macroeconomics – Approaching the study of economics from a very broad and far reaching perspective Microeconomics – Approaching the study of economics on much smaller scale usually isolating an individual household, business, or a specific industry This class is Macroeconomics although we will learn a number of Micro concepts

19. Pitfalls to Objective Thinking Always consider the source, recognize that bias almost always exists on some level with today’s media Controversy and exaggerated claims sell subscriptions, drive “click-throughs”, and generate advertising dollars. Always follow the $$$ and always consider the source

20. The Cable TV Spectrum

21. Causation vs. Correlation Because two events are positively correlated does not always mean that they share a cause-effect relationship. This is also known as the post hoc fallacy or the fallacy of composition The fallacy of composition also applies to scenarios where it would be incorrect to assume that what is true for one is also true for many

22. Homework Vocabulary Unit 1 Reading Unit 1