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CHAPTER 1 - LECTURE NOTES I. Learning objectives – In this chapter students will learn: A. The definitions of economics and the features of the economic perspective. B. The role of economic theory in economics. C. The distinction between microeconomics and macroeconomics. D. The categories of scarce resources and the nature of the economizing problem. E. About production possibilities analysis, including opportunity costs, and economic growth. II. Definition of Economics A. The social science that studies how individuals, institutions, and society make optimal choices under conditions of scarcity. B. Human wants are unlimited, but the means to satisfy the wants are limited. III. The Economic Perspective A. Scarcity and choice 1. Resources can only be used for one purpose at a time. 2. Scarcity requires that choices be made. 3. The cost of any good, service, or activity is the value of what must be given up to obtain it. This is known as the opportunity cost. B. CONSIDER THIS … Free for All? 1. Products provided for “free” to an individual are not free for society because of the required use of scarce resources to produce them. 2. Companies provide “free” goods as a marketing strategy to promote brand awareness. 3. Products that are promoted as “free” to the individual may actually be bundled with another good for which the consumer must pay. Because a purchase is required to obtain them, these products are not really free to the buyer. 4. Therefore, there is “no free lunch,” a common economic expression. C. Purposeful Behavior 1. Rational self-interest entails making decisions to achieve maximum utility. a. Utility is the pleasure or satisfaction obtained from consuming a good or service. b. Utility is measured in a unit called “utils.” 2. Different preferences and circumstances (including errors) lead to different choices. 3. Rational self-interest is not the same as selfishness. D. Marginal Analysis: Benefits and Costs 1. Most decisions concern a change in current conditions; therefore the economic perspective is largely focused on marginal analysis. 2. Each option considered weighs the marginal benefit against the marginal cost. 3. Whether the decision is personal or one made by business or government, the principle is the same. 4. The marginal cost of an action should not exceed its marginal benefits. 5. Opportunity cost is the value of the next best thing forgone. 6. Opportunity costs are always present whenever a decision is made. E. CONSIDER THIS … Fast Food Lines—An Economic Perspective 1. People choose the shortest line to reduce time cost.
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2. Lines tend to have equal lengths as people shift from longer to shorter lines in effort to save time. 3.
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