An introduction to economics Unit 1

1
An introductionto economicsUnit 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?

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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.

3
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

4
Why do we study economics?

• Society makes two kinds of choices macro (large)
  and micro (small). (video)
• Macroeconomicsthe study of decisions for the
  economy as a whole
• Nationwide decisions, big picture decisions
• All goods/services exchanged in an economy
• Microeconomicsthe study of decisions by parts of
  the economy
• Individuals, families, businesses
• Consumers and producers demand and supply of a
  particular product

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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

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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 economicsan analysis of an economic
  situation that describes how things are, using
  hard facts from the present.
• Most economists main activity
• Normative economicsan analysis that focuses on
  how things ought to be, using facts and possible
  choices and their impacts
• Policy advisers to government officials
• Video!

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1 Principle of Economics

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

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How does it work?The cause-and-effect chain
Unlimited Wants
All people have unlimited wants. This causes the
effect of scarcity.
Unfortunately, there are limited resources to
meet these wants.
Scarcity
This makes people have to choose what they will
produce and buy.
Society Chooses
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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?