Econ 1201 1st Edition Lecture 1Outline of Current Lecture – The Art and Science of Economic AnalysisI. The Economic ProblemA. Scarce ResourcesB. Unlimited WantsC. Decision MakersD. MarketsII. The Art of Economic AnalysisIII. The Science of EconomicsCurrent LectureI. Economic Problem: the allocation of scarce resources to satisfy unlimited wants- People will never stop wanting, but there is not an endless supply of resources to satisfy those wants A. Scarce ResourcesLabor Capital NaturalResources Entrepreneurial AbilityType of Pay Wages Interest Rent ProfitExamples Human Labor- A classroom- Machines- Getting an education- Water(Renewable)- Oil (Disposable/exhaustible)- Can be a leader- Talent to dream upa new productB. Unlimited Wants (no one can every have everything they want)C. Economic Decision Makers1. Households- Goal is to maximize utility (utility = satisfaction/happiness)- As consumers, they demand goods and services. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- As resource owners, they supply labor, capital, natural resources and entrepreneurial ability to the rest of the world2. Firms (ex. companies)- Produce goods and services - Goal is to maximize profits- Something can be a part of a household and a firm3. Government4. Rest of the World - Foreign decision makers that supply to the USD. Markets 1. Product Markets- Buy and sell goods and services-Ex. Shirt, shoes, snow plow 2. Resource Markets- Buy and sell resources-Ex. Labor, capital, machinesII. The Art of Economic Analysis: (creativity is involved)Rational Self Interest: people make the best decisions that they can given the time and information (doesn’t mean we always make the right decisions)Marginal Analysis: Small changes, incremental, additional or extra- Is it worth your time to hold the door for a stranger?*** Correlation is NOT causation! *** - Ebola patients in Africa accused Red Cross workers of spreading Ebola because as the disease got more widespread, more and more Red Cross workers entered the country. Africansthought the increase in Red Cross workers CAUSED the increase in cases of Ebola.IV. Science Of EconomicsEconomic Theories: simplification of reality to help us understand the scientific methodScientific Method:1. Identify and Define Variables2. Specify Assumptionsa. Ceteris paribus (all other things are constant)3. Formulate hypothesis4. Test the hypothesis (can reject or