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. 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. 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
