1. Basic Economic Concepts

2. Economics Scarcity Resources are Limited (Money, Time, “Stuff”)
Wants are Unlimited (We want everything!)
Economics is the study of how we allocate or distribute those scarce resources.

3. Factors of Production
There are 2 types of things produced in our world:
1.) Goods – Tangible things (a bottle of Coke, a shirt, etc…)
2.) Services – Intangible things that benefit the buyer (a massage, haircut, visit to the Dr., etc…)
These are the 4 types of “Resources” used to make any good or provide any service.
Land
Includes timber, water, minerals, and anything that comes from the land
Labor
The effort of workers
Capital
Machinery, buildings, tools, and anything used to make your product
Entrepreneurship
Risk taking, innovation, and the organization of resources for production

4. Positive vs. Normative
There are 2 main types of reasoning that economists use
Positive Analysis
Predicts the consequences of actions.
Asks the question(s) “What is?” and “What will be?”
Normative Analysis
Determines correct and incorrect choices based on a set of norms or ideals
Asks the question “What ought to be?”
Economists make predictions of possible decisions based on positive analysis. Citizens and policymakers then use those conclusions to make a normative decision.

5. Positive vs. Normative (cont.) DON’T WRITE!!!
Positive Questions
Normative Questions
If the Gov’t increases the minimum wage, how many workers will lose their job?
If 2 office-supply firms merge, will the price of office supplies increase?
How does a college education affect a person’s productivity and earnings?
How do consumers respond to a cut in income taxes?
If a nation restricts shoe imports, who benefits and who bears the cost?
Should the Gov’t increase the minimum wage?
Should the Gov’t block the merger of 2 office-supply firms?
Should the Gov’t subsidize a college education?
Should the Gov’t cut taxes to stimulate the economy?
Should the Gov’t restrict imports?

6. A Trade-off is any choice where one resource is traded for another.
Trade-Offs
Scarcity forces us to make a choice.
Costs vs. Benefits
Is the cost worth what I get out of it?
We are then forced to make a Trade-off.
We have to trade something to get something else.
A Trade-off is any choice where one resource is traded for another.

7. Opportunity Cost
Every decision has a cost, if you do one thing, you can’t do another thing. There is a cost to your opportunity.
Opportunity Cost is the value of the next best option you had available.
Scenario: You have tickets to the World Series to see the L.A. Dodgers play the N.Y. Yankees. The next day your friend tells you he got front row tickets to your favorite artist who is coming to Atlanta. They are happening at the same time…you have to choose!
Opportunity Cost
The value of what you had to give up.
Cost is much more than the $ attached to that item.

8. Law of Economy Basic law derived from human actions
If there are 2 things that are equally satisfying….people will choose the cheapest option.
If there are 2 things that cost the same….people will choose the one which gives greater satisfaction.

9. Economic Assumptions Economic thinking is based on 4 main elements
1.) Use assumptions to simplify
Try to focus on what really matters
Sometimes a simplification is harmless….sometimes it isn’t!
Planning a road trip using a map vs. planning a bicycle trip using the same map
2.) Isolate variables
Economists isolate 2 variables and hold everything else constant
3.) Think at the margin
Looks at how a small change in one variable will affect other things. Ex.) If a car dealer were to hire 1 more sales associate, how many more cars will the dealer sell?
4.) Rational people respond to incentives
We assume that people are rational, meaning they act in their own self- interest. When the payoff, or benefit, from doing something, rational people will c hange their behavior to get the benefit.

10. Micro vs. Macro -- Economics
Just like other fields, Economics is broken down into sub- groups
Microeconomics
Focuses on the choices made by individuals, households, and firms – the smaller part that makes up the Economy
Macroeconomics
Focuses on the Economy as a whole, its ups and downs, and how governments can affect the Economy.