MACROECONOMICS ECO 2013
Chapter 1 Outline
Chapter 1 – Thinking Like an Economist
I. What is Economics?
A. Making decisions due to the scarcity of resources
1. what are resources? – 4 types
2. what kinds of resources are scarce?
3. unlimited wants
4. ex. class sizes
B. Cost vs. Benefit
1. costs are obvious – but some may be harder to see
2. benefits are difficult to calculate and can be subjective
3. class size example, cont.
4. ex. Bill Gates & $100 bill
II. Conditions of Economic Decision Making
A. Rationality
B. Economic Surplus
C.
1. athletes turning pro & skipping college
2. “there can be only one”
D. Economic Models
1. “economics is painful elaboration of the obvious”
2. assumptions
a. ceteris paribus
III. Four Important Decision Pitfalls
A. Measuring Costs and Benefits as proportions rather than absolute $ amounts
1. economic surplus is simply benefit minus cost
B. Ignoring
1. what am I giving up to get this?
C. Failure to Ignore Sunk Costs
1. AYCE restaurants
2. bad movies
3. National Lampoon’s Vacation
D. Failure to understand the Average – Marginal distinction
1. marginal decisions
a. how much more?
b. point to point, incremental decisions
c. next dollar, next hour, and so on
d. marginal benefit minus marginal cost
e. average benefit minus average cost
f. ex. basketball team – p. 13
IV. Normative Economics vs. Positive Economics
A. Normative Economic Statements
1. behavioral norms, subjective
2. statements of opinion, uses “should” or “ought”
B. Positive Economic Statements
1. phrased as facts
2. able to be proven right or wrong
V. Macroeconomics vs. Microeconomics
A. Microeconomics – individual decisions
B. Macroeconomics – performance of national economies & government policies
VI. Economic Naturalism
A. Why do the keypad buttons on drive-up teller machines have Braille dots?
B. Why do brides buy wedding gowns rather than renting them, while almost all grooms rent tuxedos?
Vocabulary words are located on p. 19 of your text.