Introduction to Economics Welcome to AP Economics!
ECONOMICS
The World & Resources People +
Why do we need Economics? 1) Resources are SCARCE 2) People have Unlimited Wants & Needs FORCES: 3) Society to allocate resources
Formal Definition of Economics • The social science of how society allocates scarce resources among unlimited wants and needs. End of Day 1
• Economics is the social science of how a society allocates their scarce resources among unlimited wants and needs. Air versus Oil
Economic Systems • All economic systems allocate scarce resources • Society must choose both a political & economic system
3 Types of Economic Systems • MARKET • COMMAND • TRADITIONAL
There is NO Free Lunch • Nothing is free in economics • People face Trade-offs in all decision making • Decisions have both: -Opportunity Costs & Opportunity Benefits -Short Run and Long Run implications
2 Types of Costs:
Marginal Analysis • Economic Decisions are made at the Margin • Marginal Benefit vs. Marginal Cost • Value of next unit consumed or produced • Rational people make decisions where MB = MC Price MC MB Quantity
Marginal Benefit Worksheet MB High School Associate Bachelor’s Master’s Doctorate MC Total Earnings Total Cost $800, 000 $1, 200, 000 $2, 100, 000 $2, 500, 000 $0 $25, 000 $100, 000 $2, 500, 000
Trade-off Analysis Should I go to college? Opportunity Benefit Opportunity Cost Explicit Cost? Implicit Cost? Long Run? Short Run?