© 2010 Pearson Addison-Wesley

© 2010 Pearson Addison-Wesley

Part One: Introduction

Chapter One:

What is Economics?

*Definition, 2 big economic questions, To Think as an Economist,

Chapter Two:

The Economic Problem.

*PPF, Efficiency, Cost of Economic Growth.

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Several Definitions Need to Know

Economics/ Macro vs. Micro

What’s the 2 big questions of Economics?

How to think in an economic way?

Tradeoffs

Opportunity Cost

Marginal Cost

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What is Economics?

Let’s wiki!

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Definition of Economics

All economic questions arise because we want more than we can get.

--Our inability to satisfy all our wants is called SCARCITYSCARCITY.

*Example: Bill Gates and Warren Buffet

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Definition of Economics

Because we face scarcity, we must make choices. The choices we make depend on the incentivesincentives we face.

--An INCENTIVEINCENTIVE is a reward that encourages an action or a penalty that discourages an action

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Incentive!

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EconomicsEconomics is the social sciencesocial science that studies the choiceschoices that individuals, businesses, governments, and entire societies make as they cope with scarcityscarcity and the incentivesincentives that influence and reconcile those choices.

“Economics is the science which studies human behavior as a relationship between ends and scarce means that have alternative uses.”--- Lionel Robbins

Definition of Economics

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MacroeconomicsMacroeconomics

is the study of the performance of the national and global economies.

Examples: *What’s the effect of tax policy for U.S. in 2009? *Why did income slow in the U.S. in 2008? What’s the trend of the inflation rate?

Microeconomics Microeconomics

is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.

Examples: *Does the tax policy this year affect people’s shopping on grocery?

*Does PapaJohn’s promote Monday Special for more profit? *Why did northwest merge with Delta and what’s the effect? *Why do we prefer drive rather than walk to school?

Two Parts of Economics

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Two Big Economic Questions

Two big questions summarize the scope of economics:

1) How do choices end up determining whatwhat, , howhow, and for whomfor whom goods and services get produced?

What ? How? For Whom?

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1. WhatWhat goods and services are produced?

What, How, and For Whom?

Why?

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2.HowHow are goods and services produced?

What, How, and For Whom?

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Goods and services are produced by using productive resources that economists call factors of productionfactors of production.

Factors of production are grouped into four categories:

LandLand

LaborLabor

CapitalCapital

EntrepreneurshipEntrepreneurship

How?How?

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Factors of Production--LandFactors of Production--Land

LandLand---

•The “gifts of nature” that we use to produce goods and services are landland. Also called natural resourcesnatural resources.

•Includes minerals, oil, gas, coal, water, air, forests, and fish

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Factors of Production--LaborFactors of Production--Labor

Labor---

• The work time and work effort that people devote to producing goods and services is laborlabor.—both physical and mental effort.

The quality of labor depends on human capital,

which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.

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A measure of the growth of human capital in the U.S. over the last century

--The percentage of the population that has completed different levels of education.

Factors of Production--LaborFactors of Production--Labor

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Factors of Production--CapitalFactors of Production--Capital

CapitalCapital---

•The tools, instruments, machines, buildings, and other constructions that businesses use to produce goods and services are capitalcapital.

•Includes financialfinancial capital—money, stocks and bonds.

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Factors of Production--EntrepreneurshipFactors of Production--Entrepreneurship

EntrepreneurshipEntrepreneurship---

• The human resource that organizes land, labor, and capital is entrepreneurshipentrepreneurship