Changes

==More Definitions==

==More Definitions==

Our “economy” is our system of earning, saving and spending money on goods (like food) and services (like teaching or entertainment).  

Our “economy” is our overall system at a national level of earning, saving and spending money on goods and services.  A booming economy has lots of job opportunities; a failing economy has lots of people out of work and unable to obtain a job.

“Macroeconomics” uses the Greek root “macro-“, which means “big”.  Macroeconomics is the study of the big picture of economics on the national level.  It includes analysis of the total money supply of dollars, the Gross National Product (total dollar value of all goods and services), and the national unemployment rate (the percentage of Americans who recently lost their job).

“Macroeconomics” uses the Greek root "macro-", which means “big”.  Macroeconomics is the study of the big picture of economics on the national level.  It includes analysis of the total money supply of dollars, the Gross National Product (total dollar value of all goods and services), and the national unemployment rate (the percentage of Americans who recently lost their job).

“Microeconomics” uses the Greek root “micro-“, which means “small”.  Microeconomics is the study of individual decisions about goods and services.  It includes issues like how much a barber should charge for a haircut, or how much a grocery store should charge to sell a loaf of bread.  Microeconomics includes the study of your decisions in buying a good or service.

“Microeconomics” uses the Greek root "micro-", which means “small”.  Microeconomics is the study of individual decisions about goods and services.  It includes issues like how much a barber should charge for a haircut, or how much a grocery store should charge to sell a loaf of bread.  Microeconomics includes the study of your decisions in buying a good or service.  Our course here focuses on microeconomics rather than macroeconomics.

“Net benefits” are total benefits minus total costs.

“Net benefits” are total benefits minus total costs.

“Opportunity cost” is the value lost in order to do something.  Doing a job that pays only $5 per hour when you could have taken a different job at $12 per hour has an opportunity cost of $7 per hour.  Wasting three hours stuck in traffic has an opportunity cost of the money you could have been making for those three hours.

“Opportunity cost” is the value lost in order to do something.  Doing a job that pays only $5 per hour when you could have taken a different job at $12 per hour has an opportunity cost for you of $12-5 = $7 per hour.  Wasting three hours stuck in traffic has an opportunity cost of the money you could have been earning for those three hours, such as the minimum hourly wage times three.

“Marginal analysis” consists of looking at an incremental change in terms of costs and benefits rather than the overall average costs and benefits.  For example, if you are driving by a 7-11 the marginal cost of stopping in to buy a carton of milk is only a few minutes of your time.  But if you are sitting at home, then the marginal cost of buying a carton of milk is much greater: you must get into your car and drive all the way to a grocery store, which takes much longer and consumes more gas.

“Marginal analysis” consists of looking at the costs and benefits of an '''''incremental''''' change, rather than the overall costs and benefits.  For example, if you are already standing outside a grocery store, then the marginal cost of stopping in to buy a carton of milk is only a few minutes of your time plus the cost of the milk.  But if you are sitting at home, then the marginal cost of buying a carton of milk is much greater: you must get into your car and drive all the way to a grocery store, which takes much longer and consumes expensive gas, in addition to the cost of the milk.

“Positive” statements in economics are testable claims of fact, without any moral judgment.  For example, “most people watch many hours of television a day” is a positive statement.  It can be tested by doing a survey.  The people are spending their time poorly, but it is a fact that they act that way.  The remark that “fish live in trees” is also a positive statement.  The statement is false, but it is still a positive statement.  (Thanks to Tim S. for making this insightful point on conservapedia.com).

“Positive” statements in economics are '''''testable''''' claims of fact, without making any moral judgments.  For example, the statement that “most public school students watch at least three hours of television a day” is a positive claim.  It can be tested by doing a survey.  The people are spending their time poorly, but it is a fact that they act that way.  The remark that “fish live in trees” is also a positive statement.  The statement is false, but it is still a positive (testable) statement.  (Thanks to Tim S. for making this insightful point on conservapedia.com).

In contrast, “normative” statements are judgments about whether something is good or bad.  People should not watch as much television or smoke cigarettes.  That is a normative statement.  People should pray more.  That is also a normative statement.

In contrast, “normative” statements are judgments about whether something is good or bad.  People should not watch as much television or smoke cigarettes.  These are normative statements.  People should pray and read the Bible more often.  That is also a normative statement.

Sometimes we use the word “net”, as in “net benefits.”  What that means is the total benefit minus the total cost.  For example, the net benefit of working at McDonald's is your salary minus your taxes and expenses in getting there and back each day.

Sometimes we use the word “net”, as in “net benefits.”  What that means is the total benefit minus the total cost.  For example, the net benefit of working at McDonald's is your salary minus your taxes and expenses in getting there and back each day.

We will also use the word “rational”, as in “rational choice.”  That means the choice or decision that maximizes the net benefit.  A rational action, in economic terms, would be to accept the job with the highest net benefit (salary minus taxes and expenses).  You may not actually want that job for other reasons, such as working for a company that profits from addiction (e.g., a casino in Atlantic City).  But those reasons would have to be translated into economic terms to be counted as part of your economically rational decision.

We will also use the word “rational”, as in “rational choice.”  That means the choice or decision that maximizes the net benefit.  A rational action, in economic terms, would be to accept the job with the highest net benefit (salary minus taxes and expenses).  You may not actually want that job for other reasons, such as working for a company that hurts people (e.g., a casino in Atlantic City).  But those reasons would have to be translated into economic terms to be included as part of your economically rational decision.

Finally, there is the concept of “redistribution”.  That is the concept that government should try to even out the wealth in society, taking money from the rich and giving it to the poor.  The process inevitably causes a loss in total societal wealth.  Some visualize redistribution as a leaky bucket taking water from one pool and putting it into another, with water leaking out during the transfer.  The leak in the bucket corresponds to the direct and indirect costs of the transfer, including salaries for people to do the transfer and disincentives to those affected by it.

Finally, there is the concept of “redistribution”.  That is the concept that government should try to even out the wealth in society, taking money from the rich and giving it to the poor.  The process inevitably causes a loss in total societal wealth.  Redistribution is like a leaky bucket taking water from one pool and putting it into another, with water leaking out during the transfer.  The leak in the bucket corresponds to the direct and indirect costs of the transfer, including salaries for people to do the transfer and disincentives to those affected by it (people will not work as hard if they know their property is going to be taken away).

These concepts will become clearer for you as the course progresses.

The above concepts will become clearer for you as this course progresses.

==Scarcity==

==Scarcity==