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Why do we make decisions??? Scarcity A situation where there aren’t enough resources to meet wants Scarcity affects what goods (things that can be purchased) or services (a person that works for another) can be provided. Economics studies how people choose to use scare resources to satisfy their wants. How have you been impacted by the problem of scarcity? Describe a situation or personal experience. Microeconomics The study of economic behavior and decision-making by smaller units of the economy (such as individual households and business firms.) › Examines how decisions affect pricing and the supply and demand of goods and services. The study of the behavior of the economy as a whole › Can be an overview of the regional, national, or global economy › Used by governments and industries to predict trends identify economic growth help define social issues related to economic circumstances. › Ex. Unemployment trends, inflation (general rise in prices) Micro 1. Opportunity Cost & Production Possibility Curves 2. Supply and Demand 3. Market Structures Monopolies, corporations, etc 4. Role of Government Taxation and Gov’t spending to correct market failures Macro 5. Gross Domestic Product, Inflation, Unemployment, Poverty 6. Money, stocks & bonds 7. Fiscal and Monetary Policy 8. Trade and Comparative Advantage If you are analyzing the average national income of Americans, are you studying microeconomics or macroeconomics? Three factors determine someone’s decision to do or buy something › Positive incentives (benefits/ rewards) Cleaning your room go to a movie Creating a savings account earn interest on your money › Negative incentives (costs/ penalties) No homework get a bad grade Miss work Lose my job › Utility (usefulness) How often will I wear this shirt if I buy it? People try to make the best decision or economize › Economize means to make decisions according to what you believe is the best combination of costs and benefits “There is no such thing as a free lunch.” › This old saying sums up the issue of choice in economics. › There is always a cost for something even if it is “free” Ex: I went to a concert for “free”. I gave a unit of blood at the red cross to get a ticket Ex: I got a popcorn at the movies for “free” I had to buy overpriced candy and soda to get the popcorn Tradeoff-the alternative people give up when they make choices Ex: If you are going for a night out with your friends A: Go to the movies B: Go to dinner If you take B (dinner) the tradeoff is A (movie), or vice versa. Opportunity cost- the value of something that is given up to get something else that is wanted. If you select B, the opportunity cost is seeing your favorite actor If you select A, the opportunity cost is the nourishment of the meal you gave up Frank is faced with a decision. He can either buy a $60 textbook or a new video game for $50. Frank really wants the video game, but he needs the textbook to study. What should he do? Option A- He buys the textbook A. › › › What is his tradeoff? What is the opportunity cost? How did utility impact his decision to buy the textbook? Option B- He buys the video game B. › › › What is his tradeoff? What is the opportunity cost? How did utility impact his decision to buy the video game?