AP Macroeconomics Introduction • Economics: Concerned with the efficient use and management of limited productive resources to achieve maximum satisfaction of human material wants and needs. • Study of behaviour in producing, distributing, and consuming material goods and services in a world of scarce resources. • Scarcity: Wants exceed resources. • We want more than we are capable of getting. • Microeconomics: Deals with specific economic units and a detailed consideration of these individual units. • Macroeconomics: Deals either with the economy as a whole or the basic subdivision or aggregates such as government, household, or business sectors, which make up the economy. • Ceteris Paribus: Other things being equal. In economics when you are working on a problem we must assume that only those variables will change. All others remain the same. The Economic Way of Thinking • • • • Everything has a cost People choose for good reasons Incentives matter People create economic systems to influence choices and incentives • People gain from voluntary trade • Economic thinking is marginal thinking The Economic Way of Thinking • The value of a good or service is affected by people’s choices • Economic actions create secondary effects • The test of a theory is its ability to predict correctly.