What is economics? * Economics is the social science concerned with the choices that individuals, businesses, governments, and entire societies make when they cope with scarcity.
What is Microeconomics? * Microeconomics is the study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments.

The Economic Way of Thinking: * The study of economics encompasses the incentives that influence people’s choices and the arrangements that coordinate them. Economists study the quantities of goods and services sold or offered (SUPPLY) and the relationship of supply to how much people need or want (DEMAND). * Economic way of thinking (EWT) has 3 main components – I Scarcity and choice II Marginal analysis III Incentives

I. SCARCITY AND CHOICE: a. Resources are scarce. Human wants exceed the resources available to satisfy them. b. Choices must be made. We must choose among the available alternatives. c. Choice is a tradeoff. There is no free lunch.
People make rational choices by comparing costs and benefits. * Benefit: What you gain from something. * Cost: What you give up to get something.
Opportunity cost – * The value of the best alternative that you must give up to get something – the value of the best forgone alternative.

II. Marginal Analysis: d. Margin: Margin means extra or additional e. A choice is made at the margin by comparing all the alternatives. * Marginal Analysis: * Refers to a comparison of marginal benefit and marginal cost.

* Marginal Cost: * What you give up to get one additional unit of something. * Marginal Benefit: * What you gain when you get one additional unit of something. * Marginal Cost and Marginal Benefit: * You make a rational choice when you take those actions for which marginal benefit equals marginal cost.