What is Economics

  • The study of how people seek to satisfy their need and wants by making choices.

  • Scarcity

    • definition: the concept of having unlimited wants vs. having limited resources

Macroeconomics vs. Microeconomics

  • Macroeconomics

    • involves economic problems encountered by the nation as a whole
  • Microeconomics

    • concerned with the economic problems faced by individual unites within the overall economy

Four Factors of Production (Resources)

  • Land

    • definition: natural resources that are used to make goods and services
  • Labor

    • definition: the effort that people devote for a paid task
  • Capital

    • definition: any human-made resource used to create other goods and services

    • Physical capital: tools and buildings

    • Human capital: skills and knowledge through education and experience

  • Entrepreneurship

    • definition: a person who uses the three factors of production to create goods and services

Needs vs. Wants

  • Need - There is no other alternative

  • We do not NEED anything!

  • Economics is about placing value on the things that you WANT and making CHOICES based on these wants.

    ovi 50 e AP Microeconomics Exam 5 • Intep\&Access Clo Tel Wa Ing 1
on S There are NO weds They ML all waw(s.

Every Choice Has a Cost

  • Nothing is free.

  • When you make a choice, the best alternative you gave up as a result is known as the opportunity cost.

  • All the possible things that you give up would referred to a trade-off

  • Every choice, however large or small, will incur an opportunity cost.

    After school, you are faced with three options: watchinq television,
reading a book, or cleaning up the house. You pyefer cleaning up the
house to reading a book, but prefer watching television to cleaning up
the house. What is the opportunity cost of watching television? ON.
cose CYøite did Q house He Book

Positive Economics vs. Normative Economics

  • Positive Economics

    • branch of economics analysis that describes the way the economy actually works
  • Normative Economics

    • branch of economic analysis that interjects subjective claims on how the economy should work
  • Positive statement:

    • If a new tax is implemented, the state will collect $1 million in new revenue.

    • If the government provides a safety net for citizens, income taxes will be increased.

    • If you spend 15 hours studying AP Microeconomics, you will get a 5 on Microeconomics.

  • Normative statement:

    • The government should raise taxes on higher income families in order to raise more revenue.

    • The government should provide a safety net for those in society that are incapable of thinking care of themselves

    • You should get a 5 on the AP Microeconomics Exam.

Marginal Analysis

  • definition: deciding whether to do or use one additional unit of some resource

  • Most decision are not "all or nothing" propositions

  • Involves deciding whether or not to consume the next unit

    marginal change a small incremental adjustment to a plan of action
Rational people know that decisions in life are rarely black and white
but usu- ally involve shades of gray. At dinnertime, the question you
face is not "Should I fast or eat like a pig?" More likely, you will
be asking yourself "Should I take that extra spoonful of mashed
potatoes?" When exams roll around, your decision is not between
blowing them off and studying twenty-four hours a day but whether to
spend an extra hour reviewing your notes instead of watching TV.
Economists use the term marginal change to describe a small
incremental adjustment to an existing plan of action. Keep in mind
that margin means "edge," so marginal changes are adjustments around
the edges of what you are doing. Rational people often make decisions
by comparing marginal benefits and marginal costs.

Economic Profit

  • Economic Profit = Accounting Profit - Opportunity Cost

    You make $75,000 a year at your current job as a teacher for XYZ
School District. You are considering a job offer from ABC School
District in which the pay is $100,000 a year. Should you accept the
new job? Natmwhre issue • Beneas /CosYs ABC $75000 LOOJOOO ACCN1}ind
Oppor4unily cost = $7$poo — $ 100,000

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