Introduction to Economics

Welcome to AP Economics!

1) Take a Book (front of classroom on floor)

2) Pick your Desk for this entire semester!

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

– margin = next unit • You decide to study => how long?• You buy popcorn at a movie=> what size?

• Marginal Benefit (MB) vs. Marginal Cost (MC)

• Value of next unit consumed Cost of next unit

• When the MB ≥ MC then “do it”

Marginal Benefit Worksheet

Total Earnings Total Cost

High School $800,000 $0Associate $1,200,000 $25,000Bachelor’s $2,000,000 $100,000Master’s $2,100,000 $200,000Doctorate $2,500,000 $2,500,000

MB MC

Should I go to college?

Opportunity Benefit Opportunity Cost

Worksheet #1 Trade-off Analysis

Explicit Cost?

Implicit Cost?

Long Run?Short Run?

Should the Gov’t Subsidize Electric Cars?

Benefits Costs

End of 2nd Day

Please read your textbook!