Transcript Introduction to Economics What is Economics? Economics is the study of how to allocate (spread/distribute) scarce resources among competing wants and needs. What does that.

Introduction to
Economics
What is Economics?
Economics is the study of how to allocate
(spread/distribute) scarce resources
among competing wants and needs.
What does that mean?
Less Formally...
There is not enough of everything that
people want (and need) to go around.
Some people will get things and others
will not. Certain products will be
produced and others will not. That is a
fact. The question is then, how do we
determine who gets what.
How Do Economists Think Scarcity and Goods
Scarcity is at the heart of economics. If
there were no scarcity, there would be
no need for economics.
 Scarcity arises because society does
not have enough resources to produce
all the things people would like to have.
 These things are called goods. Goods
are any items that are desired by
people.

The Economic Questions
 What
 How
 For
to Produce?
to Produce?
Whom to Produce?
How Do Economists Think - Utility
and Rationality
Economists assume that people act to
maximize their own happiness
 Utility- The usefulness of a product ( or
the satisfaction gained from something)
 We also assume all people act rationally
(make good decisions based on selfinterest).

How Do Economists Think Resources

Resources- the raw elements that go
into the production of a good or service.

YOU CAN NOT CREATE A GOOD
WITHOUT RESOURCES!!!
Four Resources or
Factors of Production
Land - Natural Resources (raw
materials)
 Labor - Skills of People
 Capital - Goods Used To Make Other
Goods (not money)
 Entrepreneurs – Risk takers who start
new businesses or bring in new
products in search for profits.

How Do Economists Think Rationing Device
How do we decide who gets what?
 A rationing device is a process by
which we determine who gets what.
It could be coupons, a line, height, or
alphabetical order. What is the
rationing device for most goods in
the U.S. economy?
-Price

TINSTAAFL
There
is no such
thing as a free
lunch!
 What
does this mean?
Trade Offs
 Making
choices of how to spend
money or time. You cannot have
everything, so you have to
choose.
Opportunity Cost
 Opportunity
Cost – The value of the
action not taken.
 Remember Smoking?
A
life time of smoking has an
opportunity cost of 1.75 million
dollars.
Decisions Made at “The Margin”
An economist is always thinking
dynamically. Asking themselves “what
next?”
 You have to think this way in this class.

Incentives
 Economists
always think about
incentives. They believe that
people respond to incentives.
 Incentives- something that
encourages a certain type of
behavior.
Incentives - Example

For instance if I offered you an A in this
class for $5, many of you would pay me.

NOT GOING TO HAPPEN.
What is the incentive for you in this class?
 Grades?
 Knowledge?

Types of Economics
 Microeconomics
- Studies the
behavior of individual people and
firms.
 Macroeconomics - Studies the
behavior of entire economies as a
whole.