Economics Chapter 1: Limits, Alternatives, and Choices Objectives economics defined role of economic theory theorys like tax

cuts jumpstarting economies microeconomics vs macroeconomics micro-individual macro-group resource scarcity production possiblilities model Economics defined economic wants exceed productive capacity Economics: the efficient allocation of scarce resources Perspective thinking like an economist: Key features: - scarcity and choice - purposeful behavior - most decisions are based on emotion - the most satisfaction out of spending - Marginal analysis (business way of thinking) - benefits vs cost - benefits should be bigger than cost - no emotion in desicion Scarcity and choice resources are limited Choices must be made there is no free lunch - someone somewhere has to pay for it Opportunity cost - what you give up to make the decision you made -only have 20$, need jeans and a sweatshirt, can only buy one, t he other is the opportunity cost purposeful behavior - brings the person the most joy rational self-interest individuals and utility - the most joy out of cost firms and profit - businesses are in business to make a profit - class a sumption Desired outcome - max profit -make more profit by: -increasing sales - decreasing expenses Marginal analysis marginal benefit marginal cost marginal means extra comparision of barginal benfit to marginal cost Economic models the scientific method 1.gather facts/situation 2.form hypothesis from limited facts gathered 3.gather additional information to reject/accept hypothesis

4.if accepted: create theory - right usually, but not always 5.form a "law" - they always work this way law of demand - when prices are low, demand is high, whe n price is high, demand is low law of supply - when high prices, high supplies, low pri ces, low supplies Cause and effect Economic Principles Simplification of reality Other-things-equal assumption only using two variables ex. prices vs quantity sold -> price is the only variable but other things can be there too, just not that situation Macro vs Micro Macroeconomics - aggregate (total area) -ex.study forest Microeconomics - individual units -ex.study trees Positive Economics - telling it how it is currently Normative Economics - potential goals for future, but not where it is now Individuals economizing problems limited income unlimited wants a budget line spending a certain amount between several things ANY POINT on that line is possible, past the line it is not Trade offs and opportunity costs Make best choice possible change in income Societys economizing problem scarce resources - land - labor - captial - stuff it takes to provide others, not neccessarily money - entrepreneurial ability - people willing to leave their comfort zone a nd make their own businesses Factors of production ^^^ Production possibilities Model Illustrate production choices Assumptions: -Fixed resources -full employment -fixed technology production alternatives pizzas 0 1 2 3 4 robots 10 9 7 4 0 inside graph is attainable, outside is not attainable perfect 1 for 1 graph is 45 degree angle Law of increasing opportunity cost the more of something you get, the higher the opportunity cost because i t does not bring the same joy for the cost

The future economy consequences of unemplyment economic growth - more resources - better quality resources - *technological advances* -biggest part driving economy International Trade production point comsumption point specializations Us- things that take lots of money to make Austrailia - lots of space but few people to make Japan - very skilled to make tensions are eased when trading not likely to kill a country thats paying them... Optimal allocation of Resources Pitfalls to sound economic reasoning biases- watch out loaded terminology - "obsene profits" Fallacy of composition true for individual is true for the group - not always true "good for general motors is good for america" - uh no? Post Hoc Fallacy if a precedes b then a caused b Correlation but not causation 2 things happen at the same time, but didnt cause each other *go through key terms on powerpoint* 1. 2. 3. 4. we have unlimited wants and limited resources describes the fact we as individuals buy things for satisfaction how businesses make descions without emotion cost v benefit macro - aggregate or total micro - individual 5. positive - how things are normative - how they would like it to be later, goals 6. land labor capital entrepenurial capability 7. shows maximum you can do in a certain periode of time 8. the more of something you aquire the less satisfaction oyou get from it, mean ing more meansgiving up more 9. big time, 70% due to technology 10. each country tries to come up with the one thing that they are better at mak ing then other countries so trade between countries occurs, both sides win.