Economics Assume everything is scares land, money, etc Scarcity leads to tradeoffs.

. Another way to look at economics is how and why people behave the way they do. How do we decide what is created in society. Economics is a different way to analyze decisions.

Outline 1

Chapter 1: The Scope and Method of Economics Outline 1) Why Study Economics? To learn a way of thinking, to understand society, to understand global affairs, to be an informed citizen 2) The Scope of Economics Microeconomics and macroeconomics, the diverse fields of economics 3) The Method of Economics Descriptive economics and economic theory, theories and models, economic policy 4) An Invitation
1) Why Study Economics? Economics- the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided 1.1: To learn a way of thinking Opportunity cost- the best alternative that we forgo, or give up, when we make a choice or decision Marginalism- the process of analyzing the additional or incremental costs or benefits arising from a choice or decision

Should I go to college or not?

Efficient market- a market in which profit opportunities are eliminated almost instantaneously 1.2 To Understand Society Industrial Revolution- the period in England during the late eighteenth and early nineteenth centuries in which new manufacturing technologies and improved transportation gave rise to the modern factory system and a massive movement of the population from the countryside to the cities 1.3 To Understand Global Affairs, 1.4 To Be an Informed Citizen 2) The Scope of Economics 2.1 Micro and Macro Microeconomics- the branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units- that is, firms and households Firms = business producing goods or services. Firms = what to produce, and how much, and what to charge. Who gets what is produced. What causes poverty? Macroeconomics- the branch of economics that examines the economic behavior of aggregatesincome, employment, output, and so on- on a national scale The Us economy . Big scale. Big picture. 2.2 The Diverse Fields of Economics Summarized in Table 1.2 3) The Method of Economics 2 major types of questions Positive economics- an approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works. They are facts. How things are? Normative economics- an approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action (also called policy economics) OPIONS. Analyzing outcome How things should be? SHOULD = normative Outline 3

3.1 Descriptive Economics and Economic Theory Descriptive economics- the compilation of data that describe phenomena and facts Economic theory- a statement or set of related statements about cause and effect, action and reaction Law of demand. Price goes up, quantity goes down. 3.2 Theories and Models Model- a formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables When there is a degree of truth, it becomes a model. Variable- a measure that can change from time to time or from observation to observation Ockhams razor- the principle that irrelevant detail should be cut away Its a simplification factor. The amount of simplification depends on what the model will be used for. 3.3 All Else Equal: Ceteris Paribus Ceteris paribus or all else equal- a device used to analyze the relationship between two variables while the values of other variables are held unchanged 3.4 Expressing Models in Words, Graphs, and Equations 3.5 Cautions and Pitfalls Post hoc, ergo propter hoc- literally, after this (in time), therefore because of this a common error made in thinking about causation: if event A happens before event B, it is not necessarily true that A caused B Outline 4

Theories talk about cause and effect. Causations vs correlation. Sales of ice cream increase and a huge increase in shark attacks. They are correlated but the real reason its happening is cuz its summer.

Fallacy of composition- the erroneous belief that what is true for a part is necessarily true for the whole 3.6 Testing Theories and Models: Empirical Economics Empirical economics- the collection and use of data to test economic theories 4) Economic Policy To use theory in creating policy, we use 4 criteria to judge different outcomes: Efficiency- in economics, allocative efficiency- an efficient economy is one that produces what people want at the least possible cost Equity- fairness Economic growth- an increase in the total output of an economy Stability- a condition in which national output is growing steadily, with low inflation and full employment of resources Outline 5

Chapter 2: The Economic Problem: Scarcity and Choice Outline 1) Scarcity, Choice, and Opportunity Cost Scarcity and Choice in a One-Person Economy, Scarcity and Choice in an Economy of Two or More, The Production Possibility Frontier, The Economic Problem 2) Economic Systems and the Role of Government Command Economies, Laissez-Faire Economies: The Free Market, Mixed Systems, Markets, and Governments
1) Scarcity, Choice and Opportunity Cost (Definitions) Capital- things that are produced and then used in the production of other goods and services Factors of production (factors)- the inputs into the process of production, aka resources Production- the process that transforms scarce resources into useful goods and services Inputs or resources- anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants Outputs- goods and services of value to households Theory of comparative advantage- Ricardos theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers Absolute advantage- a producer has an absolute advantage over another in the production of a good or service if he or she can produce that product using fewer resources Comparative advantage- a producer has a comparative advantage over another in the production of a good or service if he or she can produce that product at a lower opportunity cost Outline 6

Consumer goods- goods produced for present consumption Investment- the process of using resources to produce new capital Production possibility frontier (ppf)- a graph that shows all the combinations of goods and services that can be produced if all of societys resources are used efficiently Negative Slope and Opportunity Costs Marginal rate of transformation (MRT)- the slope of the production possibilities frontier (ppf) Outline 7 The Law of Increasing Opportunity Cost- Point on ppf A B C D E Total Corn Production (Millions of Bushels per Year) 700 650 510 400 300 Total Wheat Production (Millions of Bushels per Year) 100 200 380 500 550