1. Economics: The Science of Everyday Life
Chapter 1
Economics: The Science of Everyday Life

2. Opportunity Cost Economics is the science of scarcity
What was scarcity?
Because of scarcity we must make CHOICES
Choices lead to opportunity cost.
the most desired alternative you have foregone to obtain a good or service, or undertake an activity.

3. Cost–Benefit Analysis
How do you decide which CHOICE to make?
Weigh the costs and the benefits
Marginal analysis is a method of comparing the costs and benefits of the last unit of an activity.
Marginal cost is the cost of consuming or producing an additional unit.
Marginal benefit is the benefit associated with consuming or producing an additional unit.

4. Economic Models: What is this?
Tools to understand, explain and predict economic actions.
Simplify assumptions to focus on a specific aspect of an economic relationship
Ceteris paribus assumption to hold “all else equal” when evaluating changes in causal factors

5. Chapter One Homework
Numbers 4, 6, and 8

6. Graphing and Algebra Review
Appendix for Chapter 1
Graphing and Algebra Review

7. Variables
Variables are letters or symbols used to represent economic concepts.
Examples: P for price and Q for quantity
Variables can be:
Dependent  depends on another variable
Independent  value depends only on itself

8. Figure 1A.1 The Relationship Between Hours Studied and Exam Score

9. Equations of Straight Lines
The basic form of a linear equation:
m = the slope; b =the y-intercept

10. Which is which? Which is the independent variable?X
Which is the dependent variable? Y

11. Figure 1A.2 SLOPE: The Relationship Between Passengers and Gasoline Consumption

12. Figure 1A.3 Graphing an Inverse Relationship Between Dependent and Independent Variables

13. Figure 1A.4 The Effect of a Change in Intercept on the Curve