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ECONOMICS 101

INTRODUCTORY MICROECONOMICS

INTRODUCTION

Fundamental Concepts

Economics & Its Fundamental Concept

The fundamental concept of economics is scarcity

 Scarcity: resources are limited relative to our wants

Scarcity compels us to make choices

 Economics: the study of how individuals and societies manage scarce resources (i.e. finds the best allocation of our scarce resources)

Two Main Branches of Economics

Economics can be divided into two main branches:

 Microeconomics: studies the decision-making of individuals and firms and how these decisions are coordinated in markets

Economics can be divided into two main branches:

 Macroeconomics: studies economy-wide phenomenon, such as aggregate production, unemployment, and inflation

Classify each of the following as a topic of microeconomics or macroeconomics:

 the effect of tax policy on the hiring decisions of small business

 the effect of the housing market crash on GDP

 the impact of tuition cost on college attendance

 the central bank’s decision to raise interest rates

 the effect of social security on the retirement decisions of workers