THE STUDY OF ECONOMICS

1. THE STUDY OF ECONOMICS -The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human economic wants. -The study of scarcity and choice. Every economic issue involves, at its most basic level, individual choices decisions by individuals about what to do and what not to do.

2. RESOURCES ARE SCARCE • You can’t always get what you want. • Scarcity (you must understand this to understand economics) this means that individuals have to make choices because our wants are unlimited but our resources are limited. (goods/services limited) example time/income • What are these resources that I speak of? • 1. LAND included all resources that come from nature (examples) • 2. LABOR effort of workers • 3. CAPITAL goods used to make other goods (examples) • 4. ENTREPRENEURSHIP risk taking, organization of resources for production (Human Capital) • These are also known as the factors of production. • Just as individuals must make choices, the scarcity of resources means that society as a whole must make choices • How does society make choices about how to use our resources? • Individuals • Government • What is a want and what is a need and how does scarcity factor in this?

3. OPPORTUNITY COST • Economists call the value of what you must give up when you make a particular choice. They are concerned with more than just costs paid in money. • Are crucial to individual choice because, in the end, all costs are opportunity cost because with every choice, an alternative is forgone. • Example you spend $10 dollars on pizza what is your opportunity cost? • Opportunity cost of a choice includes all the costs, whether or not they are monetary costs of making choices. • Example college after high school or get a job. • Nations also have to deal with opportunity cost • Guns and butter.

4. MICROECONOMICS VS MACROECONMICS MICROECONOMIS MACROECONOMICS Branch of economics that studies the overall ups and downs of the economy. Focus on economic aggregates-economic measures such as the unemployment rate, inflation rate ect-that summarize date across many different markets Big picture focus. • Branch of economics concerned with how individuals make decisions and how these interact. • Focuses on choices made by individuals, households, business • Focus on the smaller parts that make up the economy as a whole

5. Positive VS Normative Economics • Economic analysis draws on a set of basic economic principles that are applied based on the purpose of the analysis. • Positive Economics : analysis used to answer questions about the way the world works. Statements of “what is” or “what will be.” No value judgments are applied questions that have definite right and wrong answers. 2. Normative Economics: Analysis that involves saying how the world should work. Statements of “what should be” this does involve value judgments of what is right wrong or best

6. You are an economic adviser to the governor of Florida, and he is considering a change to the toll charged along the turnpike. Below are the questions he ask you • 1. How much revenue will the tolls yield next year? • 2. How much would the revenue increase if the toll were raised from $2.00 to $3.00? • 3. Should the toll be raised, keeping in mind that a toll increase would likely reduce traffic and air pollution near the road but impose financial hardship on frequent commuters? • Positive economics is about description • Normative economics is about prescription • Rent control vs rent subsidies (both help low-income families)

7. When and Why Economists Disagree • 1. Media coverage • No story if they agree • 2. economics is tied into politics • Interest groups • 3. Disagree on real important issues • Income tax vs value added tax • What are the sources of the differences • 1. values • 2. way economists conduct economic analysis • Base their conclusions on models formed by making simplifying assumptions about reality. Different economists can disagree about which simplifications are appropriate. • Value added tax