Name _______________________
Section 1
Module 1: Individual Choice: The Core of Economics
Lecture Notes
Pump Primer:
In your own words define: “wants” and “needs.”
Give at least three personal examples, for each term.
Objectives:
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How scarcity and choice are central to the study of economics
The importance of opportunity cost in individual choice and decision making
The difference between positive economics and normative economics
When economists agree and why sometimes disagree
What makes macroeconomics different from microeconomics
Key Economic Concepts for This Module:
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Economic resources are limited/scarce which implies that the goods/services they produce are limited.
Scarcity requires that choices be made.
Choices imply that things are given up.
There is an opportunity cost for all choices.
Economics: The social science concerned with the efficient use of ________________ or ____________
resources to achieve maximum satisfaction of human economic _____________.
 _______________________ is the study of scarcity and choice. Every economic issue involves,
at its most basic level, individual choice—decisions by individuals about what to do and what not
to do. In fact, you might say that it isn’t economics if it isn’t about choice.
Resources Are Scarce
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Economics exists as a discipline because resources are _______________ (that’s why there is
scarcity and we have to make choices).
What exactly are these resources? Economists divide resources into 4 categories.
o Resources:
 __________ (the effort of workers),
 __________ (including timber, water, minerals, and all other resources that
come from nature),
 ________________ (machinery, buildings, tools, and all other manufactured
goods used to make other goods and services)
 _______________________________(also described as human capital) (risk
taking, innovation, and the organization of resources for production)
Economic resources are limited/scarce which implies that the goods/services they produce must
be limited.
o ______________ requires that choices be made.
o ______________ imply that things are given up.
An example that relates to the school or local community.
o Example: The size of the school parking lot is limited, which means only a certain
number of cars can be parked there. If the parking lot were to be expanded, without
purchasing more land, what would be sacrificed?
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An example at the national level.
o Example: A hydroelectric dam is being planned for a river. Many costly resources will
be required to build this dam. Those resources could have been used in other projects.
So, a bridge over a scenic wild river, or a new highway was sacrificed. By damming the
river, we also give up goods and services that could have been generated by the
undammed river. Maybe guided whitewater rafting was sacrificed.
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These sacrifices are called _____________________ _________. To get more of one thing, you
forgo the opportunity of getting something else. So, the cost of the dam is the value of all that is
sacrificed to obtain it.
What about “free” stuff?
 If you’ve ever bought paint at a store like Sherwin Williams, they will give you some wooden
stir-sticks and a metal can opener.
Is this free? No.
Resources were used to make these items (wood, aluminum and labor) and because those
resources have alternative uses, society gave up something else to produce the items that you
receive at (seemingly) no cost.
Opportunity Cost: The Real Cost of Something is What You Must Give Up to Get It
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The sacrifices that are experienced when a choice is made are called opportunity costs. To get
more of one thing, you forgo the opportunity to get something else.
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As the previous examples illustrate, decisions made in the face of scarce resources involve
bypassing other opportunities and these forgone opportunities have value, or cost.
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Example: Suppose you purchase a digital camera that costs $100, and you decided not
to buy a pair of running shoes that also cost $100. The opportunity cost of buying the
camera is $100, plus the forgone enjoyment of the running shoes.
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Example: Ask the students for an example of an after-school activity they might choose
(a sport, club, theatre, etc). By choosing to play tennis (for example), what was the next
best activity given up? Suppose it was a spot in the band.
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The student is giving up the spot in the band, an activity that would have given the student a lot
of enjoyment. How could we place a value on this forgone fun?
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If you had to pay a fee for the spot in the band, how much would you pay? Start at $5. If you
would pay $5 to join the band and have that fun, would you pay $10, $20, $50? Once a student
reaches the maximum dollar amount that they would pay to join the band, you have placed a
value on the opportunity cost of playing tennis.
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Microeconomics versus Macroeconomics
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_____________________________: The branch of economics concerned with how individuals
make decisions and how these decisions interact. Microeconomics focuses on choices made by
individuals, households, or firms—the smaller parts that make up the economy as a whole.
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_____________________________: The branch of economics that studies the overall ups and
downs of the economy. Macro focuses on economic aggregates—economic measures such as
the unemployment rate, the inflation rate, and gross domestic product—that summarize data
across many different markets. Macroeconomics focuses on the bigger picture.
Positive Versus Normative Economics
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__________________________ economic: Economic analysis used to answer questions about
the way the world works. Statements of “what is” or “what will be”. No value judgments are
applied. Positive economic analysis can be tested to determine if it is correct or not.
o Example of a positive statement: It is 80 degrees outside. This is a statement of what
is. Whether it is right or wrong, it is positive because we can go outside and test the
temperature using a thermometer and determine if the statement is correct or not.
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__________________________ economics: Economic analysis that involves saying how the
world should work. Statements of “what should be”. These involve value judgments of what is
“right”, “wrong”, or “best”.
o Example of a normative statement: It is too cold outside. This is a value judgment and
there is no way to determine if it is right or wrong. Someone else can always differ in
their judgment about whether it is too cold outside or not.
When and Why Economists Disagree
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Economists may disagree because they have different values or opinions
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Economists may disagree because they use different models or methods to conduct their
analysis
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Over time, disputes in economics are resolved by the accumulation of evidence (but this can
sometimes take a long time!)
Common Student Difficulties:
• Students often assume that the first chapter in a textbook can easily be skimmed and dismissed as
“easy stuff.” It’s important to stress that, although there will be more difficult chapters, a solid
understanding of the terminology and decision-making from this chapter will prevent headaches and
missteps later.
• Economic resources are very different from the “resources” that are often described in everyday
speech. For example, there is a difference between money (financial capital) and capital (as we use the
term in economics). We might hear that a firm’s “capital” is depleted during a recession. This typically
means that the firm is having a cash flow problem, not that they are losing their machinery.
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• At the individual level, we typically think of how our scarce income prevents us from consuming some
of the goods we most desire. You need to think more about why our income is scarce. It is probably
because our time and our labor resources, both in terms of quality and quantity, are limited in what
they can command in the job market.
• The opportunity cost of choosing an activity is not equal to all of the forgone opportunities; it is the
cost of the one with the highest value. For example, suppose a student chooses to study economics for
one hour after school. In that hour, he/she could have worked at the grocery store for $10 per hour, or
mowed his/her grandmother’s yard for $20. The opportunity cost of studying is $20, not $30, because
he/she could not have both worked at the grocery store and mowed the yard.
• An important characteristic about normative economic statements is that they include implicit or
explicit value judgments. If Tina states, “we must spend more money on our schools, and less on the
military” she is implicitly telling you that she places a higher value on education than she does on
national defense. Positive economic statements are absent of value judgments.
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