Microeconomics Unit 1

Basic Economic Concepts

Economics is …Social scienceEfficient use of limited or scarce resourcesMaximum satisfaction of human economic

wantsStudy of scarcity and choice

Scarcity isimbalance between limited resources

and unlimited human wants.

Basic Economic Concepts

Market economies are …Decentralized decisionsMany firms and individuals

Command Economies are …Publicly ownedCentral authority makes decisions

Individual choice is …Decisions on what and what not to do.

Basic Economic Concepts

Why have most command economies failed and

most market economies succeeded?

???????

Incentives$$$$$$$PriceProfit

Property rightsEnjoy the rewards of the investment

Basic Economic Concepts

What are resources?

?????????

CAPITAL

LABORLAND

ENTREPRENEURSHIP

Scarcity requires that choices be made.

Choices imply that things are given up.

Basic Economic Concepts

1. Define resources.2. List the four categories of resources.3. What characteristic of resources results in

the need to make choices?

Warm-up

Opportunity Cost is …Real cost of something you give up to get

something else

Marginal Benefit (MB) is …Additional benefit received from a choice

Marginal Cost (MC) is …Additional ‘cost’ of a choice

Marginal Analysis is …‘weighing’ the MB and the MC of a choiceMB >= MC DO IT; MB <= MC DO NOT!!

Basic Economic Concepts

Microeconomics is …How individuals make decisionsHow these decision interactChoices made by individuals, household or

firmsSmaller parts of the whole economy

Basic Economic Concepts

Macroeconomics is …Overall ups and downs of the global economyEconomic aggregates

Unemployment, inflation, gross domestic produce

Summarize data across many different markets

Bigger picture

Basic Economic Concepts

Positive economics is …Answers questions about the way the

world works.‘What will’ or’ what will be’.NO value judgments.

Normative economics is …Says how the world should work.‘What should be’.Value judgments – ‘right’, wrong’, ‘best’.

Basic Economic Concepts