1. LO1 Marginal Analysis Comparison of MB & MC More school? Study? Supersize Fries? Marginal benefit Marginal cost Marginal means “extra” Opportunity Cost 1-1

2. LO2 Economic Principles The scientific method: Economic principles: Enables prediction of effects of certain actions. 1. Generalizations (P↓D↑) 2. Other-things-equal assumption (Focus only of Pepsi and ignore Coke) 3. Graphical expression Observe hypothesisTest the hypothesis Accept, reject, or modify the hypothesis Continue to test the hypothesis, if necessary 1-2

3. LO3 Microeconomics and Macroeconomics Microeconomics Decision making by individual units Macroeconomics Aggregate 1-3

4. LO3 Positive and Normative Economics Positive economics Deals with economic facts (what is) Normative economics A subjective perspective of the economy (what ought to be) 1-4

5. LO4 Limited Income 1-5

6. LO4 Individual’s Economizing Problem Limited income…yes even Trump. Unlimited wants (goods and services; always changing) A budget line Schedule or Curve Attainable and unattainable options Tradeoffs and opportunity costs Make the best choice possible Change in income 1-6

7. LO4 Budget Line and Graph (p.9) 65432106543210 0 2 4 6 8 10 12 DVDs $20 Books $10 $120 Budget 12 10 8 6 4 2 0 2 4 6 8 10 12 14 Quantity of Books Quantity of DVDs Income = $120 P dvd = $20 = 6 Income = $120 P b = $10 = 12 Attainable Unattainable 1-7 What is the opportunity cost of buying 1 DVD?