Economics: The study of how individuals, businesses and nations make choices based on scarcity. Scarcity: Unlimited wants combined with limited economic resources. SO, People have to make choices. You must choose how to spend your time Businesses must choose how many people to hire Need: essential for survival (ex: food) Want: everything that is NOT a need (ex: luxury car) 1. Trade-offs – EVERY alternative you give up as the result of making a decision. Example: You have $10 and decide to spend it on going to see a movie. The “trade-offs” are anything else you could have bought for $10. 2. Opportunity Cost – Only the BEST alternative to a decision you make. Example: You have $10 and decide to spend it on a movie. Your second choice would have been to go out to dinner. (The dinner is the opportunity cost to the decision to go to the movie). Assume: 1. You want to visit a friend through the end of next week. 2. You earn $100 every weekday. 3. You have three flights to choose from: 4. Tonight is Thursday Night. Thursday Night Flight = $275 Friday Early Morning Flight = $300 Friday Night Flight = $325 Which flight should you choose? Why? "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement.” --Dwight Eisenhower speaking against military spending during the Cold War Launched in 1975, total cost $679 million (in 2015 dollars, it would cost $2.8 billion. All resources that are used to produce a good or a service. 1. Land (Farmland, water, coal, forests) 2. Labor (Doctor, McDonald’s worker) 3. Capital: Any man-made resource that is used to produce other goods and services. 2 Kinds: A. Physical (factory, tools) B. Human (education)…you are all increasing your own human capital right now! 4. Entrepreneurs: People that combine land, labor, and capital to create goods and services. MICROeconomics Study of small economic units such as individuals, firms, and industries (ex: supply and demand in specific markets, production costs, labor markets, etc.) MACROeconomics Study of the large economy as a whole or economic aggregates (ex: economic growth, government spending, inflation, unemployment, international trade etc.) Positive Statements Based on facts. Avoids value judgments (what is). Normative Statements Includes value judgments (what I believe ought to be). Consumer Goods – Products and services that directly satisfy human wants (Cheeseburger, Eye Exam). Capital Goods – Goods that indirectly satisfy human wants in the future (factory, screwdriver).