In This Lesson I

➢Goods and Bads and

Resources
➢Scarcity
➢Opportunity Costs
➢Costs and Benefits
➢Decisions Made at the
Margin

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 In This Lesson II

➢Incentives
➢Efficiency
➢Unintended Effects
➢Exchange
➢Ceteris Paribus
 In This Lesson III

➢The market and the

Government
➢Theory
➢Economic Categories
 Building A Definition of Economics
~ Goods and Bads ~
➢Good - Anything from which individuals
receive utility or satisfaction
➢Utility - The satisfaction one receives from a
good
➢Bad - Anything from which individuals
receive disutility or dissatisfaction
➢Disutility - The dissatisfaction one receives
from a bad
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 Building A Definition of Economics
~ Resources ~

Land - All natural

resources, such as
minerals, forests,
water, and
unimproved land

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 Building A Definition of Economics
~ Resources ~

Labor - The physical

and mental talents
people contribute to
the production
process

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 Building A Definition of Economics
~ Resources ~

Capital - Produced goods that can be used

as inputs for further production, such as
factories, machinery, tools, computers,
and buildings

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 Building A Definition of Economics
~ Resources ~

Entrepreneurship - The particular talent that some

people have for:
➢organizing the resources of land, labor, and
capital to produce goods
➢seeking new business opportunities
➢ developing new ways of doing things

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 Scarcity

The condition in
which our wants are
greater than the
limited resources
available to satisfy
those wants

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 Economics, the Science of Scarcity

The science of how individuals and societies

deal with the fact that wants are greater than
the limited resources available to satisfy those
wants.

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 Opportunity Costs
➢The most highly valued opportunity or
alternative forfeited when a choice is made.
➢Economists believe that a change in
opportunity cost can change a person’s
behavior.
➢The higher the opportunity cost of doing
something, the less likely it will be done.

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Scarcity, Choice and Opportunity Costs

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 Marginal Benefits

Additional benefits. The benefits

connected to consuming an additional
unit of a good or undertaking one more unit
of an activity.

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 Marginal Costs

Additional costs. The costs connected

to consuming an additional unit of a
good or undertaking one more unit of
an activity.

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 Decisions at the Margin

Decision making characterized by

weighing the additional (marginal)
benefits of a change against the
additional (marginal) costs of a
change with respect to current
conditions
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 Graphing Workshop
Working with Graphs

Click graph to watch tutorial

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 Efficiency
MB = marginal benefits and MC = marginal costs. In the exhibit, the
MB curve of studying is downward sloping and the MC curve of
studying is upward sloping. As long as MB > MC, the person will
study. The person stops studying when MB = MC. This is where
efficiency is achieved.

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 Study or Play

Cost

Benefit
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 Incentives
Something that encourages or motivates a
person to take an action.

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 Unintended Effects
A positive or negative outcome that was not
anticipated

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 Exchange/Trade

The process of giving up

one thing for
another.

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 The Market and Government
Addressing Issues
➢Financial problems in the banking sector
➢The economic effects of falling real estate prices
➢Growing federal budget deficits
➢A fall in economic activity, as measured by the total
output of goods and services produced in the country
➢Rising unemployment
➢The looming crisis in Social Security
➢Health-care issues
➢Issues related to climate change and the environment
➢The proper role of monetary policy
➢The proper role of government regulatory policy in the
➢ economy, and much more
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 The Market and Government
When it comes to economic problems, the national
debate usually proceeds along these lines:
• First, the problem is identified and defined or
described.
• Second, individuals attempt to identify the cause of the
problem.
• Third, individuals propose solutions to the problem.

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 The Market and Government

With respect to both the cause and the solution, we

often hear two words mentioned: the “market” and
“government.”
• Either:The market (or capitalism) is the cause of the
problem.
• Or: The government is the cause of the problem.
• Either: The market (or capitalism) is the solution to the
problem.
• Or: The government is the solution to the problem.
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 Ceteris Paribus

A Latin term meaning “all other things

constant” or “nothing else changes.”

Ceteris paribus is an assumption used to

examine the effect of one influence on an
outcome while holding all other influences
constant.
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 Abstract
The process (used in building a theory) of
focusing on a limited number of variables to
explain or predict an event.

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 Theory
Economists build theories to answer
questions that do not have obvious answers.

Cause Effect

Theory is an abstract representation of

the real world designed with the intent
to better understand the world.
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 Economic Categories
Positive vs. Normative Economics
Positive - The study of “what is” in economic
matters.
Cause Effect

Normative - The study of “what should be” in

economic matters
Judgment and Opinion

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 Economic Categories
Microeconomics

Microeconomics deals with human

behavior and choices as they relate to
relatively small units—an individual, a
business firm, an industry, a single
market.

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 Microeconomic Questions
➢How does a market work?
➢What level of output does a firm produce?
➢What price does a firm charge for the good it
produces?
➢How does a consumer determine how much of a
good he or she will buy?
➢Can government policy affect business behavior?
➢Can government policy affect consumer behavior?

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 Economic Categories
Macroeconomics
Macroeconomics deals with human
behavior and choices as they relate to
highly aggregate markets (e.g., the goods
and services market) or the entire
economy.

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 Macroeconomic Questions
➢How does the economy work?
➢Why is the unemployment rate sometimes high and
sometimes low?
➢What causes inflation?
➢Why do some national economies grow faster than
other national economies?
➢What might cause interest rates to be low one year
and high the next?
➢How do changes in the money supply affect the
economy?
➢How do changes in government spending and taxes
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 Wall Street Journal
The Wall Street Journal is a is a rich source of
information which provides real life examples
of micro- and macro economic activities.
Check today’s issue to see the most current
news.
http://www.wsj.com
Other Useful Sources of Current
Economic News
New York Times
http://www.nytimes.com/pages/business/index.html

Financial Times
http://www.ft.com/home/us

The Economist
http://www.economist.com/index.html
Paul Schneiderman, Ph.D., Professor of Finance & Economics, Southern New Hampshire
University