Today’s Warm Up Pick up and complete the questionnaire

at the front of the room – “Do You Think Like an Economist?”

Basic Economic ConceptsToday’s LEQ: Why should we care about economics?

What is Economics?The science of scarcity -

unlimited wants, limited resourcesScarcity forces us to make

choices Economists study how individuals

and societies deal with scarcity

Comp. Check Which is more important to survival –

diamonds or water? Which is more expensive and why?

How much does a ticket cost for a regular season Phillies game? What about in 2008 when the Phillies made it to the World Series? In terms of scarcity, explain why the price increased.

Trade-OffsALL decisions involve

trade-offs – the alternatives we give up whenever we choose one course of action over others (There is no such thing as a free lunch!)

Opportunity cost – the most desirable alternative given up

i.e. sleep, study, fun example

Micro vs. MacroMICROeconomics – study of

small economic units such as ind’ls, firms, industries

MACROeconomics – Study of the LARGE economy as a whole or in its basic subdivisions (national economic growth, unemployment, etc.)

How is economics used? Theoretical Economics – scientific

method used to make generalizations & abstractions to develop theories

Policy Economics – theories applied to fix problems or meet economic goals

Positive vs. Normative: Positive Statements – based on facts.

Avoids value judgements (what is) Normative Statements – includes

value judgements (what ought to be)

Marginal Analysis In economics, marginal =

additional“Thinking on the margin” or

marginal analysis involves making decisions based on the additional benefit vs. the additional cost

In Summary: Five Key Economic Assumptions1. Society’s wants are unlimited, but ALL

resources are limited (scarcity).2. Due to scarcity, choices must be made. Every

choice has a cost (a trade-off).3. Everyone’s goal is to make choices that

maximize their satisfaction. Everyone acts in their own “self-interest.”

4. Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice

5. Real-life situations can be explained and analyzed through simplified models and graphs.

Homework – Due by ThursdayRead Chapter 1 in the Mankiw

textAdd to your class notes as you

read.Complete the AP

Microeconomics Pre-Test (no stressing!)