1. Introduction to Economics
Dr. Dennis Foster
Supply
Demand
Price
Quantity Pe Qe
Q =f(K,L) K Q A B

2. Economics Scarcity Choices (Opportunity) Costs
A framework for understanding. . .
Scarcity
Choices
(Opportunity) Costs
Limited Resources
Unlimited Wants
Premise: Rational self-interest
i.e., human action is not random; it is purposeful.

3. Scarcity  Choices  Opportunity Costs
Making tradeoffs
Weighing costs and benefits
Decisions are made “at the margin ”
Opp. cost = value of next best choice
Attending class?
A new car?
Affordable Care Act?
Every person/group/society makes choices
TANSTAAFL

4. First choice – markets …
Choices must be made
What will be produced?
How will it be produced?
Who will get what is produced?
Efficiency -
the “measure” of how well we answer
these questions.
First choice – markets …

5. Methodology of Economics
Use of logical reasoning.
Assumption that “all else is equal.”
Theories cannot be proved.
Some rely on logic; others on data.
Beware of logical fallacies .
Use of models.
Descriptive models
Graphical models
Mathematical models
Ceteris paribus
Non sequitur
Anecdotes
Post hoc …

6. Graphing A picture is worth a thousand words . . . Q C Q = f(K,L) B A
What is Q? What is K? What is L?
What is the cause and what is the effect?
How to we move from A to B?
Q = f(K,L) K Q A B C D
Classic Production Function
Q=Output, K=Capital
L=Labor
How do we move from A to C?
How do we move from B to D?
What is Q if K is zero?
How are K & Q related (+/-)?
What is the nature of that relationship?
If K doubles, Q will do what?

7. Introduction to Economics
Dr. Dennis Foster
Supply
Demand
Price
Quantity Pe Qe
Q =f(K,L) K Q A B