1. Day 2 EQ: What is scarcity? Agenda: -Voc. quiz -Collect signed syllabus -Q & A about the course -Lecture Homework: - Complete Activity 2 - Next 6 terms on flashcards -create personal pie chart Today’s Quiz 1.Economics. 2.Scarcity 3.Macroeconomics 4.Microeconomics 5.Consumers 6.Producers

2. Scarcity

3. UNIT I: BASIC ECONOMIC CONCEPTS Length: 23 Days Chapters: 1-3 I WON THE LOTERY! Now what do I do?

4. The 10 Principles of Economics How People Make Decisions: 1.People Face Tradeoffs 2.The Cost of Something is What You Give Up to Get Something 3.Rational People Think At the Margin 4.People Respond to Incentives How People Interact: 5.Trade Can Make Everyone Better Off 6.Markets Are Usually a Good Way to Organize Economic Activity 7.Governments Can Sometimes Improve Market Outcomes How The Economy As A Whole Works: 8.A Country’s Standard of Living Depends on its Ability to Produce Goods and Services 9.Prices Rise When the Government Prints Too Much Money 10.Society Faces a Short-Run Trade-off between Inflation and Unemployment

5. WHAT IS ECONOMICS IN GENERAL? Economics is the study of _________. Economics is the science of scarcity. Scarcity is the condition in which our wants are greater than our limited resources. Since we are unable to have everything we desire, we must make choices on how we will use our resources. In economics we will study the choices of individuals, firms, and governments. choices

6. SCARCITY MEANS THERE IS NOT ENOUGH FOR EVERYONE Government must step in to help allocate resources

7. Economics Defined Economics-Social science concerned with the efficient use of limited resources to achieve maximum satisfaction of economic wants.(Study of how individuals and societies deal with ______) Examples: You must choose between buying jeans or buying shoes. Businesses must choose how many people to hire Governments must choose how much to spend on welfare. scarcity

8. MICRO VS. MACRO Micro Examines:Macro Examines: Individual marketsInternational trade the behavior of firms (companies) and consumers National markets the allocation of land, labor and capital resources Total output and income of nations Supply and demandTotal supply and demand of the nation The efficiency of marketsTaxes and government spending Product marketsInterest rates and central banks Profit maximizationUnemployment and inflation Utility maximizationIncome distribution CompetitionEconomics growth and development Resource markets Market failure

9. CHAPTER 1 TEN PRINCIPLES OF ECONOMICS HOW PEOPLE MAKE DECISIONS All decisions involve tradeoffs. Examples: Going to a party the night before your midterm leaves less time for studying. Having more money to buy stuff requires working longer hours, which leaves less time for leisure. Protecting the environment requires resources that could otherwise be used to produce consumer goods. Principle #1: People Face Tradeoffs

10. CHAPTER 1 TEN PRINCIPLES OF ECONOMICS HOW PEOPLE MAKE DECISIONS Society faces an important tradeoff: efficiency vs. equity efficiency: getting the most out of scarce resources equity: distributing prosperity fairly among society’s members Tradeoff: To increase equity, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic “pie.” Principle #1: People Face Tradeoffs

11. CHAPTER 1 TEN PRINCIPLES OF ECONOMICS HOW PEOPLE MAKE DECISIONS Making decisions requires comparing the costs and benefits of alternative choices. The opportunity cost of any item is whatever must be given up to obtain it. It is the relevant cost for decision making. Principle #2: The Cost of Something Is What You Give Up to Get It

12. WHAT IS YOUNG RANDY’S OPPORTUNITY COST IN THIS PICTURE? The Trade-off was 1 brunette for one blonde

13. CHAPTER 1 TEN PRINCIPLES OF ECONOMICS HOW PEOPLE MAKE DECISIONS Examples: The opportunity cost of… …going to college for a year is not just the tuition, books, and fees, but also the foregone wages. …seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater. Principle #2: The Cost of Something Is What You Give Up to Get It

14. PRINCIPLE #3: RATIONAL PEOPLE THINK AT THE MARGIN. Marginal changes- In economics the term marginal = additional People make decisions by comparing costs and benefits at the margin. The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs!

15. Would you see the movie three times? Notice that the total benefit is more than the total cost but you would NOT watch the movie the 3 rd time. THINKING AT THE MARGIN # Times Watching Movie BenefitCost 1st$30$10 2nd$15$10 3rd$5$10 Total$50$30

16. Basketball star LeBron James understands opportunity costs and incentives. He chose to skip college and go straight from high school to the pros where he earns millions of dollars. Principle #4: People Respond to Incentives