Group Hand shake

Economics
 MEANINGS OF ECONOMICS
• The study of how people use time and material
resources to improve their own well-being.
• The study of how people’s economic decisions
affect others in society.
• Studies the effect that government policies have
on the economic decisions of people.
Implications
1.Economics is a social science that examines human behavior
2.Concept of microeconomics.
3.It involves decision-making
4.Behavior is motivated by self-interest
5.Economic decisions have a broader impact that extends beyond the
individual.
6.Macroeconomic concept. Looks at the overall state of economic
conditions.
7.Government policies can affect economic activity.
 Other definitions
• The science of how individuals and societies deal with the
fact that wants are greater than the limited resources
available to satisfy those wants.
• The social science that studies the choices that individuals,
businesses, governments, and entire societies to make as
they cope with scarcity and the incentives that influence
and reconcile those choices.
 Scarcity
• scarcity is the condition in which our wants are
greater than the limited resources available to satisfy
those wants.
• Study of the choices we make among our many wants
and desires given our limited resources.
• Scarcity implies choice. In a world of limited
resources, we must choose which wants will be
satisfied and which will go unsatisfied.
 EFFECTS OF SCARCITY
1. The need to make economic decision or choices.
• Scarcity forces us to choose, and choices are costly
because we must give up other opportunities that we
value. To choose is to lose.
• When it comes to economic decisions, people are self-
interested.
• Consumers, workers, and firms all face choices because
of scarcity.
2. Competition
 EFFECTS OF SCARCITY
2. Rationing device
A means of deciding who gets what of available
resources.
Example: money
3. Competition
Assignment
• Research the key concepts of economics. Explain
each one in 2-3 paragraphs and give at least one
example/situation that illustrates the concept
 KEY CONCEPTS IN ECONOMICS
1. People Face Trade-off
2. Opportunity Cost
3. Benefits and Costs
4. Decisions made at the margin
5. People respond to incentives
 1. People Face Trade-off
•Trade-off- the giving up of one good or
activity in order to obtain some other good
or activity.
 2. Opportunity Cost
• Opportunity cost- the highest valued alternative
that must be given up when a choice is made.
• There is no such thing as free lunch
• Change in opportunity cost can change a person’s
behavior. The higher the opportunity cost of
doing something, the less likely it will be done.
WHY LEBRON JAMES ISN’T IN
COLLEGE
 3. Benefits and Costs
•Economists think in terms of both
costs and benefits
 4. Decisions made at the margin
• Decision making characterized by weighing the additional
(marginal) benefits of a change against the additional (marginal)
costs of a change with respect to current conditions.
• Marginal Benefits- additional benefits; the benefits connected with
consuming an additional unit of a good or undertaking one more
unit of an activity.
• Marginal Costs- additional costs; the costs connected with
consuming an additional unit of a good or undertaking one more
unit of an activity.
 5. People Respond to Incentives
•Incentive- is something that encourages or
motivates a person to undertake an action.
•Good- anything from which individuals
receive utility or satisfaction

•Bad- anything from which individuals

receives disutility or dissatisfaction
 CETERIS PARIBUS AND THEORY
• Ceteris paribus- A Latin term meaning all other
things constant or nothing else changes
• Using ceteris paribus assumption is important
because with it, we can clearly designate what
we believe is the correct relationship between
two variables.
• Theory- is an abstract representation of the world
• Abstract means omitting certain variables or factors
when you try to explain or understand something.
• The process (used in building a theory) of focusing on a
limited number of variables to explain or predict an
event.
• A theory emphasizes only the variables that the theorist
believes are the main or critical ones that explain an
activity or event
 ECONOMIC CATEGORIES
• Economics is sometimes broken down into
different categories according to the type of
questions asked.
• Positive and Normative Economics
• Microeconomics and Macroeconomics
 POSITIVE ECONOMICS AND
NORMATIVE ECONOMICS
• Positive Economics
• Attempts to determine what is.
• An objective, testable statement that describes what happens
and why it happens.
• Deals with cause-effect relationships that can be tested
• Normative Economics
• Addresses what should be.
• A subjective, contestable statement that attempts to describe
what should be done.
• Deals with value judgments and opinions
 MICROECONOMICS AND
MACROECONOMICS
• Microeconomics
• Branch of economics that deals with human behavior
and choices as they relate to individual units: an
individual, a firm, an industry, a single market
• Macroeconomics
• The branch of economics that deals with human
behavior and choices as they relate to an entire
economy.
 PRODUCTION POSSIBILITIES
FRONTIER
• Represents the potential total output combination of
any two goods for an economy, given the inputs and
technology available to the economy.
• Illustrates an economy’s potential for allocating its
limited resources in producing various combinations
of goods, in a given time period.
Example:
Imagine living in an economy that produces just two
goods, food and shelter.
• Economists often say than an economy is in productive efficient if it is
producing the maximum output with the resources and technology
that it has. Each point on the production possibilities curve represents
the potential amounts of food and shelter that can be produced in a
given period, with a given quantity and quality of resources in the
economy available.
• The economy cannot operate at point N (not attainable) during the
given period because not enough resources are currently available to
produce that level of output.
• An economy is productive inefficient if it is producing less than the
maximum output with the resources and technology it has. If economy
is operating at point I, or any other point inside the production
possibilities curve, it is not at full capacity and is operating inefficiently.
• Law of Increasing Opportunity Cost- the opportunity cost of
producing additional units of a good rises as society
produces more of that good.
• Economic growth refers to the increased productive
capabilities of an economy. It is illustrated by an outward
shift in the PPF. Two major factors that produce economic
growth are (1) an increase in the quantity of resources and
(2) an advance in technology.
PPF can be used to illustrate 7 economic concepts

1. Scarcity
2. Choice
3. Opportunity cost
4. Productive efficiency
5. Productive inefficiency
6. Unemployed resources
7. Economic growth
 THE CIRCULAR FLOW MODEL
• An illustration of the continuous flow of goods, services, inputs, and
payments between firms and households.
• Product markets- markets where household are
buyers and firms are sellers of goods and
services.
• Factor (or input) markets- markets where
households sell the use of their inputs (land,
labor, capital, and entrepreneurship) to firms.