1. Basic Economic Concepts
Unit One:
Basic Economic Concepts

2. I. Individual Choice
Economics: The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human economic wants.
Economics: study of scarcity and choice
Every economic issue at its most basic level involves individual choice.

3. A. Resources are Scarce
Resources: anything that can be used to produce a good or service
Factors of Production
Labor
Ex. Grocery store clerk, lumberjack, etc.
Land
Ex. Earth, water, minerals, timber, etc.
Capital (Physical and Human)
Ex. machinery, tools, skills
Entrepreneurship
Ex. Innovation and risk taking by people like Mark Zuckerberg
Scarcity: means “of limited amount”; different than shortage (which is temporary)
Resources are more than their colloquial definition
FOP
Labor: all human attributes that are productive
Land: all natural resources
Capital: productive equipment or machinery (human/ physical)
Entrepreneurship not counted by all economists
Economic resources are limited therefore, so are goods/services.
Scarcity requires that choices have to be made and that some opportunities are given up
High level of scarcity: gold, oil, platinum
Low Level of scarcity: water, rocks, dirt
Local example: school parking; if we didn’t purchase more land, what would be sacrificed?
National example: hydroelectric dam; resources could have been used for something else; give up resources that could have been used by an undammed river (whitewater rafting)
Free-stuff: those resources could have been used elsewhere in society

4. B. Opportunity Cost
Opportunity Cost: the real cost of something is what you must give up to get it.
Ex. Time spent studying vs. time spent socializing
Marginal analysis: decisions based upon the benefit and cost of adding one more unit
Ex. Should I study one more hour and still have some free time
In Macro this looks more like the sacrifices countries must make in production
Opportunity cost is what must be given up in a trade-off (it’s the next best alternative)
Calculate opportunity cost next lesson
Ex. Buying a digital camera; OC is the $100 and what you could have bought other than the camera
Ex. Playing football or cheerleading; cannot do both during the fall
What might this look like on an international level? Domestic goods or military goods for example?
Marginal Analysis: varying degrees of using resources

5. II. Micro and Macroeconomics
Microeconomics: concerned with how individuals make decisions and how these decisions interact.
Choices made by individuals, households, or firms
Macroeconomics: studies the overall ups and downs of the economy
Focuses on economic aggregates
Ex. Unemployment, inflation, and GDP
Macroeconomics also worries about issues like national defense spending, taxes, and the money supply

6. Positive and Normative Economics
Positive Economics: analysis used to answer questions about the way the world works.
Statements of “what is” or “what will be.”
No value judgements are applied
Normative Economics: analysis that involves saying how the world should work.
Statements of “what should be.”
Judgements of what is “right,” “wrong,” or “best.”
Positive Economics: Freakonomics
Normative Economics: Robert Reich
There is always bias, even using the scientific method
There is always a degree of normative economics at work