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

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

3. Choices involve Opportunity Costs  Making tradeoffs  Weighing costs and benefits  The value of the next best choice: Attending class... Affordable Care Act...  Every person/group/society makes choices.  TANSTAAFL – look it up.

4. 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.”  Decisions are made at the margin.  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 Post hoc … Anecdotes

6. Graphing  A picture is worth a thousand words... Q = f(K,L) K Q A B C D 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? 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? Classic Production Function Q=Output, K=Capital L=Labor

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