LO1

Marginal Analysis

• Comparison of MB & MC

• More school? Study? Supersize Fries?

• Marginal benefit

• Marginal cost

• Marginal means “extra”

• Opportunity Cost

1-1

LO2

Economic Principles

• The scientific method:

• Economic principles: Enables prediction of effects of certain actions.

1. Generalizations (P↓D↑)

2. Other-things-equal assumption (Focus only of Pepsi and ignore Coke)

3. Graphical expression

Observe hypothesis Test the hypothesis

Accept, reject, or modify the hypothesis

Continue to test the hypothesis, if necessary

1-2

LO3

Microeconomics and Macroeconomics

• Microeconomics

• Decision making by individual units

• Macroeconomics

• Aggregate

1-3

LO3

Positive and Normative Economics

• Positive economics

• Deals with economic facts (what is)

• Normative economics

• A subjective perspective of the economy (what ought to be)

1-4

LO4

Limited Income

1-5

LO4

Individual’s Economizing Problem

• Limited income…yes even Trump.

• Unlimited wants (goods and services; always changing)

• A budget line

• Schedule or Curve

• Attainable and unattainable options

• Tradeoffs and opportunity costs

• Make the best choice possible

• Change in income

1-6

LO4

Budget Line and Graph (p.9)

6543210

02468

1012

DVDs$20

Books$10

$120 Budget 12

10

8

6

4

2

02 4 6 8 10 12 14

Quantity of Books

Qua

ntity

of D

VDs

Income = $120Pdvd = $20

= 6

Income = $120Pb = $10

= 12

Attainable

Unattainable

1-7What is the opportunity cost of buying 1 DVD?