An introduction to Economics. Thinking like an economist is different than more conventional, everyday thinking. We may use the same words but use them differently, or we may use the same ideas and use different terms.

1. The Economic Way of
Thinking (Part 1)
Introduction to Economics

2. What Is Economics?
• If economics is allegedly
about money, why is it
taught as a social science?
• It is the study of how
people make decisions

3. What Is Economics?
Define
“Needs”
Something
necessary
for survival
Examples:
Food, Water,
Shelter
Define
“Wants”
A way of
expressing
a need

4. What Is Economics?
List all the different types of food you would eat in the oval.
When we are
hungry, we will
sometimes
express our need
for food by saying
what we want to
eat…
For example,
when we are
hungry, we may
skip right to the
want part and
say, “I want some
pizza.” Everyone
will know you
need food.

5. What Is Economics?
What are “Trade-Offs”?
• All the options to choose from
when deciding how to fulfill a
Need
• When deciding which food to
eat, all the different options are
your trade-offs.

6. It’s All About the Choices
What is Scarcity?
• Scarcity is when
there isn’t enough
of something to
go around
• Something is
Scarce if it is
limited, and
people desire it
What are Trade-
Offs?
• The choices
(options) we
choose from
What are
Opportunity Costs?
• The value of the
next best option
we did not
choose
Life is about choices and how the choices we make impact us now and in
the future.

7. Basic Principles
of Economic
Reasoning

8. Knowledge Is
Power
The more information you have about
your trade-offs (choices), the better
decisions you can make.

9. 1. People Choose (Everything has a
cost)
TINSTAAFL “There is not such thing as a free lunch.”
Every action costs someone time, effort, or lost opportunity to do
something else.
Opportunity Cost is the value of the next best choice you did not
make.
Not all costs are in dollars and cents.

10. 1. People Choose (Everything has a
cost)
Economics Made Memorable, part 1

11. 2. People Choose
for Good Reasons
People make decisions based on
what they believe is most
important to them
While this may vary from person
to person, it is usually the same
for most people for any given
choice
Rational Choices involve
weighing the benefits against the
costs – “cost benefit analysis”

12. 2. People Choose for Good Reasons
Economics Made Memorable, part 2

13. 2. People Choose for Good Reasons
• Production Possibilities Curves (Frontiers)

14. 3. Incentives Matter
When people make their Rational Choices, weighing the
benefits against the costs, they are comparing the
incentives involved in making the decision
When incentive change, people’s behavior changes in
predictable ways
Incentives can be positives, such as a reward or added
benefit, or a punishment or additional cost

15. 3. Incentives
Matter
Freakonomics: Incentives of a Real Estate
Agent