Econ Unit 1 (ch 1)

Chapter 1: What is Economics?

The Science of Choice

• Economics- the branch of knowledge concerned with the production, consumption, and transfer of wealth

• How is Economics a science?

  • Begins with observations

  • Observations are used to predict future cause-and-effect relationships

  • Attempt to control future events by manipulating variables

The Necessity of Choice

• Two opposing truths:

  • Insatiability- unable to be satisfied

  • Scarcity- everything is finite

• Importance of contentment (1Timothy 6:6-10)

The Cost of Choice

• Economic cost- the value people place on a good or service

  • Good- any tangible thing that has a measurable lifespan

  • Services- intangible actions of helping or doing work for someone

• If a good or service has a positive economic cost (price higher than zero),  they are called economic goods and economic services

• Nuisance goods- goods that a consumer pays to have removed

• Free goods and services- by definition

Intrinsic vs. Subjective Value

• What has more economic value: a handful of diamonds or a single glass of water?

• Intrinsic value- The value of a thing is based on the nature of the product such as its scarcity or the amount of natural resources and labor that goes into producing it

• Subjective value- An object’s usefulness (utility) to the buyer determines its worth

• Opportunity benefit- The satisfaction you get from the choice you make

• Opportunity cost- The satisfaction you give up or the regret you experience for not choosing differently

Every decision has opportunity benefits and costs!

The Scope and Purpose of Choice

• Two levels of economic study; Util=A hypothetical unit measuring satisfaction.

  • Microeconomics- focuses on choices made by individual units (people, households, businesses, etc…)

  • Macroeconomics- focuses on large-scale economic choices and issues

• Positive economics observes choices and predicts outcomes

• Normative economics makes value judgments about economic policies