1. Introduction to Economics

2. What is Economics? Scarcity – a basic human dilemma
Limited resources vs. unlimited wants
The human condition requires making choices
Definitions of Economics
Mankiw’s definition
…is the study of how society manages its scarce resources
Hedrick’s definition
…is how society chooses to allocate its scarce resources among competing demands to improve human welfare
Alternative definitions
… what economists do.
… is the study of choice.

3. Demonstration
Scarcity
Opportunity cost

4. For whom will it be produced WHFW Questions
Fundamental Questions of Economics - Scarcity requires all societies to answer the following questions:
What is to be produced?
How is to be produced?
For whom will it be produced
WHFW Questions

5. The Fundamental Economic Problem
Scarcity is the condition where unlimited human wants face limited resources. 
Economics is the study of how people satisfy wants with scarce resources. 
Needs are required for survival; wants are desired for satisfaction. 
Someone has to pay for production costs, so There Is No Such Thing As A Free Lunch (TINSTAAFL).
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6. Discussion Question
Why do you think scarcity is an issue with the rich as well as the poor?
It is a human trait that few people, regardless of their economic status, are satisfied with what they have.
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7. Three Basic Questions
What must we produce? Society must choose based on its need. 
How should we produce it? Society must choose based on its resources.
For whom should we produce? Society must choose based on its population and other available markets.
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8. How the three basic questions work in your life
Think of three things you want for your future…think big. New car, private college, trip outside the United States, children, a house, etc.
How do you make the choice of what to have and what to give up? What do you really want, how are you going to get it, should you have it at all?

9. If a society is going to produce goods and services, it needs the four factors of production.

10. The Factors of Production
Factors of production are resources necessary to produce what people want or need.
Land is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate.
Capital is the means by which something is produced such as money, tools, equipment, machinery, and factories.
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11. The Factors of Production (cont.)
Labor is the workers who apply their efforts, abilities, and skills to production.
Entrepreneurs are risk-takers who combine the land, labor, and capital into new products.
Production is creating goods and services—the result of land, capital, labor, and entrepreneurs.
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12. The Factors of Production (cont.)
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13. Crash Course Econ

14. Categories of Basic Principles of Economics
How do people make decisions?
How do people interact?
How does the economy work overall?
10 basic principles

15. How Do People Make Decisions?
Principle #1 - People face tradeoffs
Time allocation – an example of tradeoffs
Efficiency versus equity
Production Possibilities Frontier

16. Principle #2 - The cost of something is what you have to give up to get it
Opportunity costs come from Von Weiser, a German economist late 1800s
Opportunity costs are independent of monetary units
TINSTAAFL
The real costs of going to college

17. Principle #3 - Rational people think at the margin
Rational or irrational decision-making
Marginal benefits and costs versus total benefits and costs
Weighing marginal costs and benefits leads to maximizing net benefits (total welfare)

18. Marginal benefit is the gain you receive for doing anything "one more time."
If you owned, say, a cake shop, and you could sell an unlimited number of cakes for $15 apiece, then your marginal benefit for each additional cake you produced would be $15.
In the real world, though, you'll always reach a limit on how much you can sell at a given price. If your market is saturated, you might have to drop your price to sell another cake.
So your marginal benefit for the next cake might be $9. For a business, marginal benefit is typically measured in terms of revenue -- how much you can get for the next unit you produce.
Marginal cost is the additional cost you incur to produce one more unit. In the example, it's what it costs to make one more cake.
As long as your marginal benefit -- that is, your marginal revenue -- from producing one more item exceeds your marginal cost of producing that item, you'll continue to make a profit.

19. Consumers experience marginal benefits.
If a customer thinks she can get $15 worth of use or satisfaction from buying one of your cakes, she'll buy one.
But once she has one, the question is how much benefit she would get from buying a second one. If it's still $15 worth of benefit, she'll buy a second.
If it's less, she won't, and the only way you can get her to buy is to drop your price or offer some other promotion.
Consumers' marginal benefit is also referred to as "marginal utility.“
Under an economic precept known as the law of diminishing marginal utility/return, consumers' marginal benefit goes down as they consume more and more of something.
As the marginal benefit for cakes declines among your customer base, so does the price they're willing to pay -- which in turn affects your marginal benefit as a cake maker.
EX. Once you are full, you no longer want cake as much.

20. . Principle #4 –People respond to incentives
Reactions to changes in marginal benefits and costs
Increases (decreases) in marginal benefits mean more (less) of an activity
Increases (decreases) in marginal costs mean less (more) of an activity
Example of seat belts leading to increased speeds .

21. How Do People Interact?
Principle #5 - Trade can make everybody better off
Adam Smith author of the “An Inquiry into the Causes and Consequences of the Wealth of Nations” 1776
Gains from the division of labor and specialization
Mercantilists perspectives

22. Principle #6 - Markets are usually a good way of organizing economic activity
feudal times where feudal states were self- supporting, also haciendas in the new world
the benefits of trade are so powerful that people began to trade
markets for economists are more abstract than the notion of a middle eastern bazaar or a flea market and simply determine the prices and quantities traded of different goods and services
the “failure” of centrally planned economies and the movement towards markets for the WHFW questions

23. Markets
Principles 1-5 combine with markets to turn the pursuit of self-interest into promoting the interests of society
Adam Smith and the “invisible hand”
creativity and productivity are stimulated by the pursuit of self-interest into improving resource allocations
“set it and forget it” becomes “compete or be obsolete”
in some cases markets fail to allocate resources effectively so,

24. Principle #7 Governments can sometimes improve interaction that occurs in markets
there are circumstances when market signals fail to allocate resources efficiently or equitably
Public Goods, Externalities and Income Distribution
Some goods or services that people desire will not be produced by markets (e.g. lighthouses).
Some goods or services will either be underproduced (vaccines) or overproduced (pollution) because markets fails to register certain benefits or costs.

25. markets may also fail to provide an equitable or fair distribution of resources
government intervention with its ability to coerce (the opposite of voluntary) can regulate, tax and subsidize to change market outcomes
efficiency and equity: the pie analogy
if government intervention always the proper solution?

26. How Does the Economy Work as a Whole?
Principle # 8 – A country’s standard of living depends upon its ability to produce goods and services
Adam Smith’s “An Inquiry into the Nature and the Consequences of the Wealth of Nations”
Materialism – more toys mean more welfare
wealth: a necessary or sufficient condition for happiness (are rich people happier, children with lots of toys)
leisure time and productivity

27. technology and productivity the rule of 72 for growth
the factors of production: land or natural resources, labor, capital, entrepreneurship
technology and productivity
the rule of 72 for growth
the rule of 72, is the method for estimating an investment's doubling time. The rule number (e.g., 72) is divided by the interest percentage per period to obtain the approximate number of periods(usually years) required for doubling.

28. Principle #9 – The general level of prices rises when the government prints and distributes too much money
definition of money, the concept of snow to Inuits, and economic language
inflation is an increase in the general or average level of prices in an economy
“not worth a continental” and recent example in Argentina
the establish of the Federal Reserve and the introduction of sustained inflation in the US

29. Principle #10 – Society faces a short-run tradeoff between inflation and unemployment
Short-run and the long-run
demand and supply shocks
short-run increases (decreases) in output above (below) long-run potential output lead to adjustments
countercyclical stabilization versus pro- cyclical destabilization
political business cycles