1. What do economists do? Focus on Human Behaviors
(choices, risk taking, producing, and consuming)
-Interpret/analyze facts into theories and laws used to solve economic problems and predict business cycles.

2. Economists TOOL KIT: Statistics, Tables and Graphs
Graphs: How 2 variables relate
Independent
Not affected by other variables
Does NOT “depend” on values of the other variable
Horizontal Axis
Dependent
Depends on the value of the independent variable
Vertical Axis x

3. Choices People choose using: Choices involve: Rational Self-Interest
People choose most rational choice
Choose option giving them greatest satisfaction
In a competitive economy consumers and producers acting in their own self interest will improve public welfare
Choices involve:
OPPORTUNITY COSTS:
Highest valued alternative that must be forgone when a choice is made (must give up to gain). x

5. POSITIVE ECONOMICS: NORMATIVE ECONOMICS:
Focuses on what is NOT what ought to be.
Facts
Cause and effect relationship
NORMATIVE ECONOMICS:
Focuses on what ought to be.
Ethics/value judgments
Cannot be answered w/ facts alone
No right or wrong
EX: Government Spending
VS.

6. Diamond-Water Paradox
Some:
Necessities have low monetary value
Non-necessities have high value
____________________
Scarcity creates value +
Utility: Usefulness/Satisfaction (benefit of a good or service)
Diamonds: scarce + have value
Water: not as scarce - given less value

7. Utility Total Utility: maximum satisfaction you can derive. Marginal:
Winning a free concert ticket
Costs:
Benefits:
Marginal:
One more unit of something.
Marginal Utility:
Additional benefit derived from consuming something in a given period of time.
If marginal benefits > the marginal costs
You’ll consume
Until marginal benefit = marginal cost
Ex: Pizza-by-the-slice: you no longer
get satisfaction out of purchasing another.

8. LAW OF DIMINISHING MARGINAL UTILITY
Marginal benefit tends to decline from each additional unit consumed.
As benefits/satisfaction from 1 alternative decrease
Chooser will select to stop
No longer total utility
Anticipate what people will choose
“All you can eat”
Continue to consume as long as:
Marginal benefit gained is = to or greater than total cost of each unit
MU is greater than MU of another
Examples: Personal “Pizza”
Business “Workers” x

9. MACRO Looking at the WHOLE: MACROECONOMICS
Study of behavior of the economy as a whole
How major sectors interact (govt and industry)
FOCUS: Large Scale
NATIONAL or GLOBAL perspectives

10. MICRO Looking at the Parts: MICROECONOMICS
Study of specific factors in the economy
Focus: Individual Players and Business’s
Supply/Demand, Price, Costs, Profit, Competition, and Consumer Behavior