By summarising the content of each powerpoint slide we provide the outline of a lesson plan. By clicking on the blue numbers, you can reproduce any individual slide, or even use it as a diagram to handout in class.

1. Nature of Economics Source

2. The Scope And Method Of Economics Economics The study of how scarce resources are distributed amongst competing wants. Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. Economics is a social science studying how people make choices.

3. Why Study Economics? To Learn A Way Of Thinking Four fundamental concepts: • Opportunity cost • Scarcity • Marginality • Rationality

4. Why Study Economics? To Learn A Way Of Thinking – Opportunity Cost opportunity cost The best alternative that we forgo, or give up, when we make a choice or a decision. scarce limited or finite

5. Why Study Economics? To Learn A Way Of Thinking – Marginal analysis and Sunk Costs Marginal analysis The process of analysing the additional costs or benefits arising from a small change in a choice or decision. Sunk costs Costs that cannot be avoided because they have already been incurred.

6. Why Study Economics? To Learn A Way Of Thinking – Rationality Rational Assumption in the neoclassical model, utility maximising consumers interact with profit-maximising producers. But this isn’t the only model of rationality. The study of economics teaches us a way of thinking and helps us make decisions.

7. The Scope of Economics Microeconomics and Macroeconomics microeconomics The branch of economics that examines the functioning of individual industries and individual firms and households. macroeconomics The branch of economics that examines the economic behaviour of aggregates (eg national income, output, employment) Microeconomics looks at the individual unit—the household, the firm, the industry. It examines the “trees.” Macroeconomics looks at the whole, the aggregate. It analyses the “wood.”

8. The Scope of Economics Examples of Microeconomic and Macroeconomic Issues Divisions of Economics Production Prices Income Employment Microeconomics Production/output in individual industries and businesses How much steel How much office space How many cars Price of individual goods and services Price of medical care Price of gasoline Food prices Apartment rents Distribution of income and wealth Wages in the car industry Minimum wage Executive pay Poverty Employment by individual businesses and industries Jobs in the steel industry Number of employees in a firm Number of accountants Macroeconomics National production/output Total industrial output Gross domestic product GDP Growth of output Aggregate price level Consumer prices Producer prices Rate of inflation National income Total wages and salaries Total corporate profits Employment and unemployment in the economy Total number of jobs Unemployment rate

9. The Method of Economics Theories and Models – Everything Else Equal: Ceteris Paribus ceteris paribus means “everything else equal” An assumption we make to analyse the relationship between two variables while the values of other variables are held unchanged. Using the assumption of ceteris paribus is one part of the process of abstraction. In formulating economic theory, the concept helps us simplify reality to focus on the relationships that interest us. Note: as we build our models we list assumptions as A1… A2…. A3

10. The Method of Economics Theories and Models – Expressing Models in Words, Graphs, and Equations The most common method of expressing the quantitative relationship between two variables is graphing that relationship on a two-dimensional plane.

11. The Method of Economics Theories and Models – Cautions and Pitfalls The Post Hoc Fallacy or causation/correlation fallacy: post hoc, ergo propter hoc Literally, “after this (in time), therefore because of this.” A common error made in thinking about causation: If Event A happens before Event B, it is not necessarily true that A caused B. The Fallacy of Composition: fallacy of composition The erroneous belief that what is true for a part is necessarily true for the whole. Example –

12. Fallacy of composition – an example Paradox of thrift or paradox of saving. If an individual saves more, she argues that she has more money to spend. But if everyone saves more, national income in aggregate will decline, and everyone ends up having less to spend at the same overall level of savings. The rise in aggregate saving has had a depressing effect on national income.

13. The Method of Economics Economic Policy – four concerns 1. Efficiency efficiency An efficient economy is one that produces what people want at the least possible cost. 2. Equity equity Fairness.

14. The Method of Economics Economic Policy – four concerns 3. Growth economic growth An increase in the total output of an economy. In the long run, we can only pay one another what we produce overall and sell. 4. Stability stability A condition in which national output is growing steadily, with low inflation and full employment of resources – the condition of the British economy from 1992- 2007

15. Key Terms assumption ceteris paribus economic growth economic theory economic variable economics efficiency equity macroeconomics Marginal analysis microeconomics model normative economics opportunity cost rationality scarcity stability sunk costs economic variable