Please Do Now:
• Think about some of the economic choices
that you have made in the last two weeks.
• What do they include?
• How did you make your decision?
What is Economics?
• The study of:
– the production, distribution and consumption of
goods and services
– how people allocate their limited resources to
satisfy their unlimited wants
Micro and Macro Economics
• Micro= the “small” picture
– One specific event or business
– Study of individual decision-making
• Macro= the “big” picture
– The entire economy of businesses and choices
– Study of nationwide phenomena
• Economics as a science
• Models = theories
– Representations of the real world
– Analyze and make predictions of real world
– If “x,” then “y”
How to Build a Tower
Tower Building Project
• What is the cost of each of your decisions?
Cost v. Benefit
• Choices are made based on rational self-interest
– To achieve monetary and nonmonetary objectives
• Costs= the most highly valued opportunity or
alternative you give up
• What is the cost of a plasma tv?
– $$ + something else you would have bought with that
When you give something up in order to get
something else, this is an “opportunity” cost.
CHOICES and opportunity costs
• Opportunity cost is what you WOULD have done and
not COULD have done
– $10,000 to spend
• You buy car
• Could have bought clothes, vacation, down payment on house
with that 10,000
• They are NOT all opportunity costs
– Only what you WOULD have done is the opportunity cost
Wants and Resources Lead to Scarcity
• People have WANTS that give them UTILITY
– The amount of satisfaction or pleasure that one gains from
consuming a commodity, product, or service
• The WANTS are either tangible or intangible
• RESOURCES are needed to produce WANTS
• Anything used to produce goods and services
• ALWAYS limited (think of ANY RESOURCE and
it is limited)
• Ex: Gold,diamonds, oil.
Wants and Scarcity
– Always UNLIMITED (maybe not by you but by
• When people’s WANTS are greater than the
RESOURCES available…. SCARCITY
• That which you did not count on when you made
Paper tiles were $100 each
I sold an average of 100 per day
I made $10,000 per day
WHAT IF I sold tiles at $200 each
Shouldn’t I make $20,000?
Scarcity, choices, opp. costs
• People have wants.
• Because scarcity exists, people have to
• Because people have to make choices,
they have opportunity costs
• The unintended effects of decisions can
become part of the costs