MIcro economics chapter 0

Limits, Alternatives, and Choices... Introduction • Economics defined: • Economic wants exceed productive capacity.. • Use resources efficiently to maximize fulfillment of unlimited want

Limits, Alternatives, and

Choices

Introduction

• Economics defined:

• Economic wants exceed

productive capacity

• Use resources efficiently to

maximize fulfillment of unlimited wants

The Economic Perspective

• Key features:

• Scarcity and choice

• Purposeful Behavior

• Marginal Analysis

Scarcity and Choice

• Resources are scarce

• Choices must be made

• Opportunity cost

• There’s no free lunch

Purposeful Behavior

• Rational self-interest

• Utility

• Desired outcomes

• Selfless good deed

Marginal Analysis

• Compare marginal benefit and

marginal cost

• Marginal means “extra”

Theories, Principles, and Models

• Economic principles and theories

• Generalizations, so imprecise

• Ceteris Paribus:

Other-things-equal assumption

• Statements of economic

behavior supported by facts

Microeconomics and

Macroeconomics

• Microeconomics

• Decision making by individual

units

• Macroeconomics

• Aggregate, total

Positive and Normative Economics

• Positive economics

• Deals with economic facts

• Normative economics

• Subjective perspective of

economy

Society’s Economizing Problem

• Scarce resources – inputs used to

produce other goods and services

• Land – natural resources

• Labor – most workers

• Capital – manufactured inputs

• Investment – spending on production

& accumulation of capital

Society’s Economizing Problem

• Entrepreneurial ability

• Takes initiative

• Decision maker

• Innovator

• Takes risk

• Key to economic growth