I wish that I would have taken the AP I wish that I would have taken the AP economics exam. Now I have to study in economics exam. Now I have to study in College.College.

Economic ProspectiveEconomic Prospective

ECONOMICSECONOMICS - - “Science of scarcity”“Science of scarcity”-the study of the choiceschoices people make in an effort to satisfy their unlimited needs and wantsunlimited needs and wants from limited resourceslimited resources.

““No horn No horn of plenty”of plenty”

ScarcityScarcity

The economist’s lab is the real world. They don’t have the luxury of conducting controlled experiments.

Opportunity CostOpportunity CostChoicesChoices

Economics is divided into two disciplines.Economics is divided into two disciplines.

MICROECONOMICSMICROECONOMICS......

““Beautiful Beautiful forest!.forest!.

““Beautiful Beautiful leaf!”leaf!”

MACROECONOMICS...MACROECONOMICS...

1. Macroeconomics – concerned with the economy economy as a wholeas a whole or with aggregates – like government, business sectors, or households. Macroeconomics is concerned with an overview of the economyoverview of the economy. Macro examines the “forest, not the trees, “forest, not the trees, leaves, or specific pieces of bark.”leaves, or specific pieces of bark.” It gives us a “bird’s-eye view” of the economy.”“bird’s-eye view” of the economy.”

2. Microeconomics – concerned with specific specific economic unitseconomic units or individual markets. Emphasis is on individual households, industries, or firms [like the # of workers employed by Ford] [Concerns the components of the economy] Micro examines the “trees, leaves, & pieces of bark, “trees, leaves, & pieces of bark, rather than the forest.”rather than the forest.” It gives a “worm’s-eye “worm’s-eye view” view” of a specific component of our economy.

Great Forest!Great Forest!

Nice bark!Nice bark!

IIs the s the ffollowing ollowing MicroMicro oror MacroMacro??

1. The price1. The price of of digital cameras increased 5%digital cameras increased 5% last last year.year. 2. Unemployment was 5.4% for the U.S. workforce.2. Unemployment was 5.4% for the U.S. workforce.3. Unemployment in the auto industry was 8% last year.3. Unemployment in the auto industry was 8% last year.4. Duck N4. Duck National ational Bank lowered its interest rates on CDs to 8%.Bank lowered its interest rates on CDs to 8%.5. The Consumer Price Index rose to 2.7% last year.5. The Consumer Price Index rose to 2.7% last year.6. The computer industry laid off 8% of its workers last year.6. The computer industry laid off 8% of its workers last year.7. The price of gasoline rose 25% last year. 7. The price of gasoline rose 25% last year.

Why should we study Why should we study economics?economics?

WE ALL HAVE VIRTUALLY WE ALL HAVE VIRTUALLY UNLIMITED UNLIMITED WANTSWANTS......

BUT LIMITED OR SCARCE RESOURCESBUT LIMITED OR SCARCE RESOURCES!!

WHY DO WE HAVE UNLIMITED WHY DO WE HAVE UNLIMITED WANTS? BECAUSE WANTS? BECAUSE GOODS & GOODS & SERVICES PROVIDE US WITH SERVICES PROVIDE US WITH

UTILITY (SATISFACTION).UTILITY (SATISFACTION).

Needs (NECESSITIES)Needs (NECESSITIES)Everything we want and need requires Everything we want and need requires productive resources and all resources are productive resources and all resources are limitedlimited..

FoodFood ClothingClothing ShelterShelter

Wants (Luxuries)Wants (Luxuries)

versesverses

..Because resources are limited, we are Because resources are limited, we are forced to make choices on how to use forced to make choices on how to use

them. Every choice we make requires a them. Every choice we make requires a trade-offtrade-off. Economics helps us make . Economics helps us make

more more educated choices.educated choices.

Trade-offsTrade-offs– to get more of one thing – to get more of one thing means to accept less of anothermeans to accept less of another..

Mustang AthleteMustang Athlete

MustangMustangCheerleaderCheerleader

Mustang Mustang MarketteMarkette

““I’m in love withI’m in love withboth, but can both, but can have only onehave only one.”.”

Choices are Choices are primarily marginalprimarily marginal

Economist call a trade-off, an opportunity cost. Opportunity Cost; the amount of one

product that must be given up to have or produce one more unit of another product.

SScarcitycarcity ChoicesChoices Opportunity CostsOpportunity Costs

..Opportunity cost can be calculated by Opportunity cost can be calculated by doing a doing a marginal analysis; a comparison marginal analysis; a comparison of marginal benefits and marginal costsof marginal benefits and marginal costs..

Marginal simply means extra or Marginal simply means extra or additionaladditional. . Your economic perspective Your economic perspective

is simply a comparison between is simply a comparison between marginal costs and marginal benefitsmarginal costs and marginal benefits. .

..As you can see As you can see economics is grounded on the economics is grounded on the assumption of “rational self-interest” (rational assumption of “rational self-interest” (rational

behaviorbehavior). We all pursue actions that will ). We all pursue actions that will enable us to achieve our greatest satisfaction. enable us to achieve our greatest satisfaction.

However, rational behavior is different for However, rational behavior is different for everyone. This means that we all make everyone. This means that we all make

different choicesdifferent choices. .

The trick is understanding The trick is understanding which choices a person which choices a person will make. will make.

The EndThe End