AP
Macroeconomics
Chapter 1 intro
ECONOMICS
 DEF: efficient use of scarce resources
 TO—achieve maximum satisfaction of
economic wants
KEY IDEA—”no such thing as a free lunch”
OPPORTUNITY COST
UTILITY
 Satisfaction/happiness
 Weigh costs vs. benefits
 “marginal cost” vs. “marginal benefit”
 If mb is more than MC---buy product
 Too much of a good thing??
ECONOMIC METHOD
 FACTS---DATA
 FORMULATE HYPOTHESIS
 TEST IT
 ACCEPT OR REJECT IT
 CREATE A THEORY/LAW/PRINCIPLE
 USE GENERALIZATIONS—WHAT WILL A
TYPICAL CONSUMER DO???
CETERIS PARIBUS
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“ALL OTHER THINGS BEING EQUAL”
CONTROL GROUP
ALL OTHER VARIABLES CONSTANT
“IMPRECISE” SCIENCE
ECONOMIC GOALS
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1-ECONOMIC GROWTH
2-FULL EMPLOYMENT
3-PRICE LEVEL STABILITY
4-ECONOMIC FREEDOM
5-EQUITABLE DISTRIBUTION OF
INCOME
 6-INCOME SECURITY
 7-BALANCE OF TRADE
Types of Economics
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MACROECON
All consumers
“aggregate”
Use positive econ
 facts
 Use normative econ
 “should be’s”
 MICROECON
 Specific industries,
products
 Small units
PITFALLS TO REASONING
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1-BIASES
2-TERMS
3-FALLACY OF COMPOSITION
4-POST HOC, ERGO PROPTER HOC
5-CORRELATION VS. CAUSATION