3 FACTS!1. Econ is a skills based course. Learning methodology resembles algebra more than history. 2. You MUST complete assignments BEFORE class

• Class time should be about sharpening skills, rather than just introducing/reviewing concepts. 3. Econ is a very intuitive subject, but it requires PRECISION.

• Many FRQ are similar to geometric proofs and cannot be “fluffed”

Characteristics of the Ideal Classroom

1. No Busy Work

2. Fun and Meaningful Activities

3. Manageable Assignments

4. Energy and Enthusiasm

5. Humor

6. Varied Instruction with Group work

7. Clear Expectation

8. Student Input Valued

9. Respect

10. Structure and Organization

http://www.youtube.com/watch?v=dxPVyieptwA

Review with your neighbor…

1. Define scarcity2. Define Economics3. Identify the relationship between scarcity

and choices4. Explain how Macroeconomics is different

than Micro5. Explain the difference between positive and

normative economics 6. Identify the 5 main assumptions of

Economics7. Give an example of marginal analysis8. Name 10 Disney movies

AP Economics““Econ, Econ, Econ”Econ”

EconEcon

3 FACTS!1. Econ is a skills based course. Learning methodology resembles algebra more than history. 2. You MUST complete assignments BEFORE class

• Class time should be about sharpening skills, rather than just introducing/reviewing concepts. 3. Econ is a very intuitive subject, but it requires PRECISION.

• Many FRQ are similar to geometric proofs and cannot be “fluffed”

What is Economics?• Economics is the study of scarcity and choices• Scarcity means that we have unlimited wants but limited resources.• Since we are unable to have everything we desire, we must make choices on how we will use our resources.

In economics we will study the choices of individuals, firms, and governments.

ECONOMICS IS THE STUDY OF CHOICES

Economy

• Economy- system that coordinates choices about production with choices– Market economy- production and

consumption based on individuals (consumers/producers)

– Command economy- central authority makes choices of production and consumption

• LACK OF INCENTIVES

Marginal AnalysisIn economics the term marginal = additional

“Thinking on the margin”, or MARGINAL ANALYSIS involves making decisions based on the additional benefit vs. the additional cost.

For Example:You have been shopping at the mall for a half hour, the additional benefit of shopping for an additional half-hour might outweigh the additional cost (the opportunity cost). After three hours, the additional benefit from staying an additional half-hour would likely be less than the additional cost.

The MARGINAL ANALYSIS approach to decision making is more comely used than the “all

or nothing” approach.

Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home”

In reality the decision making process started with “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.”

Marginal Analysis

Would you see the movie three times?Notice that the total benefit is more than the

total cost but you would NOT watch the movie the 3rd time.

Thinking at the Margin

# Times Watching

Movie

Benefit Cost

1st $30 $10

2nd $15 $10

3rd $5 $10

Total $50 $30

The MARGINAL ANALYSIS approach to decision making is more comely used than the “all

or nothing” approach.

Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home”

In reality the decision making process started with “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.”

Marginal Analysis

You will continue to do something until the

marginal cost outweighs the marginal

benefit.

The 4 Factors of Production

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The Four Factors of Production

Entrepreneurship

Capital

Labor

Land

•Producing goods and services requires the use of resources- DUH!. •ALL resources can be classified as one of the following four factors of production:

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Land = All natural resources that are used to produce goods and services. Anything that comes from “mother nature.” (Water, Sun, Plants, Oil, Trees, Stone, Animals, etc.)

The Four Factors of Production

Labor = Any effort a person devotes to a task for which that person is paid. (manual laborers, lawyers, doctors, teachers, waiters, etc.)

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Two Types of Capital: 1. Physical Capital- Any human-made resource that is used to create other

goods and services (tools, tractors, machinery, buildings, factories, etc.)2. Human Capital- Any skills or knowledge gained by a worker through

education and experience (college degrees, vocational training, etc.)

The Four Factors of Production

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• Entrepreneurship= ambitious leaders that combine the other factors of production to create goods and services.

• Examples-Henry Ford, Bill Gates, Inventors, Store Owners, etc.

The Four Factors of Production

Entrepreneurs:1. Take The Initiative2. Innovate3. Act as the Risk Bearers

So they can obtain _________.

Profit= Revenue - Costs

PROFIT

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The Factors of Production

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The Four Factors of Production

You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk.

The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

Classify the Factors of Production in the following scenario:

The Four Factors of ProductionClassify the Factors of Production in the following scenario:

You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk.

The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

Analyzing Choices

Scarcity

Trade-offs and Opportunity Cost

ALL decisions involve trade-offs.

The most desirable alternative given up as a result of a decision is known as opportunity cost.

Trade-offs are all the alternatives that we give up whenever we choose one course of action over others.

(Examples: going to the movies)

What are trade-offs of deciding to go to college? What is the opportunity cost of going to college?

GEICO assumes you understand opportunity cost. Why?

http://www.youtube.com/watch?v=nLJ8ILIE780

Micro vs. MacroMICROeconomics-

Study of small economic units such as individuals, firms, and industries (ex: supply and demand in specific markets, production costs, labor markets, etc.)

MACROeconomics-Study of the large economy as a whole or economic aggregates (ex: economic growth, government spending, inflation, unemployment, international trade etc.)

Positive vs. Normative Positive Economics- Based on facts. Avoids value judgements (what is).Normative Economics- Includes value judgements (what ought to be).

How is Economics used? • Economists use the scientific method to make generalizations and abstractions to develop theories. This is called theoretical economics. • These theories are then applied to fix problems or meet economic goals. This is called policy economics.

5 Key Economic Assumptions1. Society’s wants are unlimited, but ALL resources

are limited (scarcity).

2. Due to scarcity, choices must be made. Every choice has a cost (a trade-off).

3. Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.”

4. Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice.

5. Real-life situations can be explained and analyzed through simplified models and graphs.