Economics
“Econ,
Econ”
Econ
Unit 1: Basic
Economic Concepts
What is Economics?
• Economics is the science of scarcity.
• Scarcity means that we have unlimited wants
but limited resources.
• Since we are unable to have everything we
desire, we must make choices on how we will
use our resources.
Economics is the study of _________.
choices
In economics we will study the choices of
individuals, firms, and governments.
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.
Textbook Definition
Economics- Social science concerned with the
efficient use of scarce resources to achieve
maximum satisfaction of economic wants.
In Other Words: Using what you have to get
what you want.
Micro vs. Macro
MICROeconomicsStudy of small economic units such as
individuals, firms, and industries
MACROeconomicsStudy of the large economy as a whole like
city, state or national economies
How do we make choices?
• Write down five choices
you have made today.
Thinking at the Margin
# Times
Watching Movie
Benefit
Cost
1st
2nd
3rd
Total
$30
$15
$5
$50
$10
$10
$10
$30
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 3rd time.
Marginal Analysis
In economics the term marginal = additional
“Thinking on the margin”, or MARGINAL
ANALYSIS involves making decisions based on
the additional benefit vs. the additional cost.
For Example:
You have been shopping at the mall for a half hour, the
additional benefit of shopping for an additional half-hour
might outweigh the additional cost (the opportunity cost).
After three hours, the additional benefit from staying an
additional half-hour would likely be less than the
additional cost.
Marginal Analysis
Notice that the decision making process wasn’t
“should I go to the mall for 3 hours or should I
stay home”
In reality the decision making process started
with “should I go to the mall at all.”
Once you are there you thought “should I stay
for an additional half hour or should I go.”
The MARGINAL ANALYSIS approach to
decision making is more comely used than the “all
or nothing” approach.
Marginal Analysis
Notice that the decision making process wasn’t
“should I go to the mall for 3 hours or should I
stay home” You will continue to do
something until the
In reality the decision
making
process started
marginal
cost
with “shouldoutweighs
I go to the the
mallmarginal
at all.”
Once you are there you
thought “should I stay
benefit.
for an additional half hour or should I go.”
The MARGINAL ANALYSIS approach to
decision making is more commonly used than the
“all or nothing” approach.
Scarcity
Review with your neighbor…
1. Define scarcity
2. Define Economics
3. Identify the relationship between
scarcity and choices
4. Explain how Macroeconomics is
different than Micro
5. Give an example of marginal analysis
6. Name 10 Disney movies
Paul Solman Video:
Opportunity Lost
Econ in Music
The Clash – Should I Stay or
Should I go
•
•
•
•
What concept is discussed in the song?
What is Marginal Analysis?
What is the opportunity cost?
Are there any marginal benefits?
14
Economic Goals
What is a good economy?
• Goals
• Efficiency
15
4 Main Goals of an Economy
• Economic Growth – produce more and
better goods and services
• Full Employment – provide jobs for
anyone WILLING to work
• Price Stability – Avoid inflation or
deflation
• Economic Efficiency – Make best use of
available resources
16
Efficiency
• Productive Efficiency – Producing goods
and services in the least costly way
• Allocative Efficiency – Producing goods
wanted by society
• Quantity vs. Quality
17
“Social” Economic Goals
• Economic Freedom – Everyone has
freedom to do what they want
• Equal Distribution of Wealth – none too
rich or too poor
• Economic Security – Providing disabled
with means of earning income
• Balance of Trade – Balance with the rest of
the world
18
Goods vs. Services
Give examples…
Goods = physical objects that satisfy needs and wants
Services = actions or activities that one
person performs for another (teaching,
cleaning, cooking)
Luxury = goods and services that are not
considered essential
Necessity = goods and services that are
considered necessary in a particular market
19
Types of Goods
• Consumer Goods- created for direct
consumption (example: pizza)
• Capital Goods- created in order to increase
production (oven, blenders, knives, etc.)
•Goods used to make consumer goods
•Normal Goods- purchase more when your
income increases
•Most goods and services
•Inferior Goods-purchase less when your
income increases
•Used cars, generic brands, Spam