Economics is about individual choice Individual Choice Economics

Economics is about individual choice.

Individual Choice • Economics – The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human economic wants. • Economics is the study of scarcity and choice. • Every economic issue involves, at its most basic level individual choice

Resources are Scarce Resources: • Land – including timber, water, minerals, and all other resources that come from the land. • Labor – The effort of workers • Capital – Machinery, buildings, tools, and all other manufactured goods used to make other goods and services • Entrepreneurship – The one who takes a risk to go in business for themselves to earn a profit.

Wants and Needs • What are examples of wants? • What are examples of needs?

Wants and Needs • Want – Limitless and varied – Things that are not necessary for survival but you would like to have. • Needs – Something that is necessary for survival. Examples: Air, water, shelter, food

Economic Resources are limited/scarce • Scarcity requires that choices be made. • Choices imply that things are given up. • What about free stuff? There is no such thing as a free lunch

Opportunity Cost • The real cost of something is what you must give up to get it. • If you have $100 to spend on either a digital camera or running shoes and you purchase the running shoes, what is your opportunity costs? (the digital camera)

Positive Economics • Economic analysis involves questions having a definite right or wrong answer. • Questions about how the world works. • Statements of “what is” or “what will be” • No value judgments are applied - Questions about facts. • Example: How much revenue will the toll roads yield? • How much would the revenue increase if the toll were raised from $1. 00 to $1. 50?

Normative Economics • Economic analysis that involves saying how the world should work. • Should the toll be raised, bearing in mind that a toll increase would likely reduce traffic and air pollution near the road but impose some financial hardship on frequent commuter? • These involve value judgments of what is “right, ” “wrong, ” or “best. ”