Module 1 The Study of Economics KRUGMANS MACROECONOMICS

Module 1 The Study of Economics KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson

Do Now – Procedures Quiz § Pick up a copy and complete. § Please work on your own, it is quiz after all …. . § Return your quiz to teacher’s In Submit Folder on desk.

Today’s Objectives • Understand apply concept of opportunity cost. • Understand apply concept of marginal benefit and marginal cost.

Unit 1 Test Wednesday - Sept. 11 & 12 Modules 1 & 3 20 -30 AP style multiple choice questions. “Tackle the Test” questions are a good sample.

SGO Pre-assessment We need to know what you don’t know.

What is Economics About? Rolling Stone Economics Lesson

Opportunity Cost • The real cost of something is what you must give up to get it. • Opportunity cost is the next best alternative.

Pair - Share • Come up with four examples of opportunity cost in your life.

Tony’s Pizza – Stay Open Late Total Store Today Total Store Open Late 1, 000 1, 200 -550 -1, 000 -500 -350 Total Benefit Pizza sales Total Cost of employees and ingredients Monthly rent on pizza store Total profit

Tony’s Pizza – Stay Open Late Marginal Benefit Pizza sales for extra hour +$200 Marginal Cost of employees and ingredients - 50 Monthly rent on pizza ? ? store is $1, 000 Stay open if MB > MC

Cost / Benefit § People compare the likely benefit of doing something with the opportunity cost. § If benefit is => cost then it is rational to do it. § If benefit < cost, it is not rational to do it.

Marginal Analysis § The cost / benefit of doing one more thing. üExample: keeping the pizza parlor open one more hour. § Marginal benefit – “benefit from one more” üExample: pizza sales that can be made in an hour. § Marginal cost = “cost of one more”

Does College Pay? Obama on careers

Module 1 Vocabulary • Economics • Individual choice • Economy • Market economy • Command economy • Property rights

Summary • Opportunity cost = next best alternative • Economic costs are opportunity costs. • Economic decisions are based on cost / benefit. • Marginal analysis compares cost / benefit of one more. Economic cost benefit is usually based on marginal analysis.

Micro vs. Macroeconomics Microeconomics: Macroeconomics: • Entire economy • Individuals, households and firms • Economic aggregates

Positive vs. Normative Positive: Normative: • What “will” happen? • What “should” happen? • What “is” happening?

Homework • Find an example of a macro, micro, positive and normative economic issue. 4 examples. • Print headlines, tape to a sheet of paper and label.