An introductionto economics

Unit 1

1. Explain the definition of economics.2. What is the difference between macro- and

micro-economics?3. Why does scarcity matter so much to us?4. What is a market? Why is what is available

in a market key to understanding economics?

What is an economy?

“An economy is a system used to manage limited resources for the production, distribution, and consumption of goods and services…” p. 3

So what?Everyone, from individuals to governments,

make decisions that influence their economic system.

What is economics?

“Economics is the study of how society chooses to use its scarce resources for the production of goods and services to satisfy unlimited wants…” p. 3

So what?Economics is the study of choice.Resources are anything used to produce an

economic good or service.• What gets produced with resources• What consumers (can) buy, businesses sell

Why do we study economics?

Society makes two kinds of choices: macro (large) and micro (small). (video)

Macroeconomics—the study of decisions for the economy as a whole– Nationwide decisions, “big picture” decisions– All goods/services exchanged in an economy

Microeconomics—the study of decisions by parts of the economy– Individuals, families, businesses– Consumers and producers’ demand and supply of a

particular product

Where do economics play out?

A market is any place or method used by buyers and sellers to exhange goods and services.

The U.S. is a free market, where consumers and businesses buy/sell products with little government restriction

• Also called “free enterprise system”– Individuals sell labor, businesses sell products to

make a profit, consumers buy/not buy– Consumers and businesses benefit from exchange in

free market

Economics: what is vs. what should be

Economists spend most of their time thinking about how things are and why. Sometimes, they think about what should be.

Positive economics—an analysis of an economic situation that describes how things are, using hard facts from the present.– Most economists’ main activity

Normative economics—an analysis that focuses on how things ought to be, using facts and possible choices and their impacts– Policy advisers to government officials

Video!

#1 Principle of Economics

Scarcity forces trade-offs.• We have unlimited wants, but limited

resources—causes a scarcity.• When you have to choose one thing over

another because of this, you make a trade-off. – Called the scarcity-forces-trade-offs

principle (“no free lunch principle”)– Every choice involves a trade-off

Unlimited Wants

Society Chooses

Scarcity

How does it work?The cause-and-effect chain

This makes people have to choose what they will produce and buy.

Unfortunately, there are limited resources to meet these wants.

All people have unlimited wants. This causes the effect of scarcity.

Check yourself…

• Why is there no such thing as a “free lunch”?

• What is economics?

• What is the difference between micro and macro economics?

• Why are things scarce? What does this force us to do?