1. First Principles
AP Econ

2. Economics
The social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity

3. 12 Basic Principles of Economics
1. The fundamental problem -resources are scarce
Unlimited wants and needs:
Society
Individual
Four factors of production
Land- natural resources used in the production process
Labor – physical and mental talents of individuals in the production process
Capital – all manufactured aids used in producing consumer goods and services
Entrepreneurship –human attribute distinct from labor

4. 2. The real cost of something is what you must give up to get it
Opportunity cost: what you give up in order to get the item you want
b. Ex: go to college or find a job?

5. analysis 3. “How Much?” is a decision at the margin
Examples: studying, eating
Compare costs and benefits of
doing a little bit more – marginal
analysis

6. 4. People usually exploit opportunities to make themselves better off
Example: Jiffy Lube in Manhattan
The role of incentives:

7. 5. There are gains from trade
Division of labor and specialization:
6. Markets move toward equilibrium
Jiffy Lube in Manhattan (again): what happens if this scenario was real?
Another example: Safeway lines
Markets are predictable

8. 7. Resources should be used as efficiently as possible to achieve society’s goals
Efficiency: Take all opportunities to make some better off while not making anyone else worse off
Equity:
Examples of conflict?

9. 8. Markets usually lead to efficiency – the “invisible hand”
Opportunities for mutual gain are usually taken
Examples:

10. 9. When markets don’t achieve efficiency, govt intervention can improve society’s welfare
Example:
10. One person’s spending is another persons income
Chain reaction effect:

11. 11. Overall spending sometimes gets out of line with the economy’s productive capacity
Example: the Great Depression
Can lead to inflation:
12. Govt policies can change spending
Varying taxes, controlling circulation
of money, etc.

12. The Office “The Art of the Swap

13. HW Ch1&2 Due Aug 23rd Read Ch 1 &2 P. 1-42 Basic Concepts Test Aug 24th