Introduction to Economics

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Introduction to EconomicsThe Basic Concepts of
Economics
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Introduction

• Microeconomics The study of how individuals
  make decisions and how these decisions interact.
• Macroeconomics The study of the overall economy
  and its ups and downs.
• Market vs. Command Economy
• Invisible Hand vs. Government

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Natural Resources

• They were here long before man/woman ever set
  foot on earth
• Natural Resources A Gift of Nature
• Humans learned how to extract resources from the
  land and transform them from their original state

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Trees Paper
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Sand Glass
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Sun Energy
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We Live in a Finite World

• No matter how much we conserve, if we keep
  consuming natural resources at our current rate,
  they will run out.

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A Consumer Society!

• The worlds people have consumed as many goods
  and services since 1950 as all previous
  generations put together
• If everyone on our planet consumed resources at
  the rate of U.S. citizens, we would need 3 more
  planet earths to provide for all 6 billion
  people.

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Renewable vs. Nonrenewable Resources

• Conservation can the supply of renewable
  resources
• Mining one ton of a nonrenewable resource
  depletes that resource by one ton
• Before society has depleted a certain resource we
  may have abandoned using it.
• Examples Coal and Flint

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Economics is the Study of Choices

• Productive Resources Anything that people can
  use to make or obtain what they want.
• In economics we study how we use scarce resources
• Choices can be painful

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Land
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Labor(The available time of workers)
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Capital (, machinery, buildings, and other
man-made productive assets)
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Human Capital (The educational achievements and
skill of workers)
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How Do We Satisfy Our Wants?

• Suppose we had an infinite supply of resources.
  Would a problem exist?
• YES!
• The basic problem in economics is not a lack of
  resources, but our limitless wants.

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Scarcity

• Unlimited Wants vs.
• Limited Resources

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Core Economic Principle 1 People Choose

• We always want more than we can get and
  productive resources (human, natural, capital)
  are always limited. Therefore, because of this
  major economic problem of scarcity, we usually
  choose the alternative that provides the most
  benefits with the least cost.

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Wants vs. Needs

• Needs Survival needs, food, shelter, clothing,
  etc.
• Wants Anything else

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Were perpetually in a state of hunger.

• We always want more stuff.
• As a result, scarcity governs us.
• Scarcity forces us to make choices and prioritize
  needs and wants.

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Core Economic Principle 2All Choices Involve
Costs

• The opportunity cost is the next best alternative
  you give up when you make a choice. When we
  choose one thing, we refuse something else at the
  same time.

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Opportunity Cost

• The value of the next best alternative that had
  to be given up for the alternative that was
  chosen.

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When You Choose You Lose
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Decisions at the Margin

• How Much? Is a decision at the margin.
• Either-or vs. How Much
• How Much decisions involve a trade-off
• A comparison of costs vs. benefits

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Incentives Matter

• When changes in the available opportunities offer
  rewards to those who change their behavior, we
  say that people face new incentives.
• Economists are skeptical of any attempt to change
  peoples behavior that doesnt change their
  incentives.

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