1. What Is Economics?
Economics is the study of how people choose to allocate their resources among unlimited wants.

Teaching Strategy: Dissect the definition of economics. Study of leads to a discussion of economics as a social science. People leads to differentiating macro- versus microeconomics. How allocate leads to rational choice and the use of models and generalizations. Scarce leads to scarcity versus shortages. Resources leads to the classification of and differences among households and societies. Unlimited wants leads to the difference between output and well-being. This often takes 20 to 30 minutes but provides a starting point for the course and an indication for the student of what the course is about.

• The fallacy of composition is the faulty logic that whats true for the individual or single business is true for the whole economy.
  
  
• Teaching Strategy: Ask students, if they earned a million dollars per year, would they be rich? Then ask, if everyone earned at least a million dollars per year, would they be rich?
  
  
• Scarcity is the situation where there is not enough of an item to satisfy everyone who wants it.
  
  

Teaching Strategy: Show scarcity by starting the lecture with an example from everyday life, for example, buying food in a supermarket with limited funds or deciding whether to spend $15 on a CD or on popcorn and a movie.


2. What Are Opportunity Costs?
Opportunity costs are the highest-valued alternative that must be forgone when a choice is made.

Teaching Strategy: Ask your students what they would be doing if they were not attending class today. Answers will usually be sleeping or working!

• The opportunity cost of going to school is the money income forgone during four years of study.
  
  

Teaching Strategy: Start your lecture by asking the students to list all their costs of going to college on a sheet of paper. Then, ask if anyone included the cost of not working for four years.

• Resources are classified into three general categories: land, labor, and capital. (Some economists distinguish entrepreneurship as distinct from labor.) People sell their resources in order to obtain income.
  
  

Teaching Strategy: Use local examples of capital and natural resources. Ask students if they know who owns those resources.


3. How Are Specialization and Opportunity Costs Related?
Specialize where opportunity costs are lowest: Scarce resources must be allocated where they can best perform the job.

Teaching Strategy: Opportunity costs can be related to your students experience; for example, if they buy a shirt, they cannot buy shoes or a tie with the same money.

Teaching Strategy: Note that marginal opportunity costs will increase as resources in specialized uses are reallocated to other uses.

• Production possibilities: Trade occurs because individuals or countries find that it is mutually beneficial to specialize in goods in which they have a comparative advantage and trade for the other goods.
  
  

Teaching Strategy: Which goods people specialize in can be illustrated by evaluating their production possibilities.


4. Why Does Specialization Occur?
Comparative advantage is the ability of one person or country to do something with a lower opportunity cost than another.

Teaching Strategy: Students usually have trouble with comparative advantage and trade. This is not because the ideas are inherently hard to understand, but because there is a lot to keep track of. Work through an example and give them one to do on their own.

Gains from trade: Specialization and trade occur everywhere. Specialization according to comparative advantage followed by trade allows everyone to acquire more of the goods they want.

Teaching Strategy: Ask your students why a professor who is good at repairing cars might still prefer to take his automobile to a garage for a tune up.


5. What Are the Benefits from Trade?
Trade is mutually beneficial for individuals, families, towns, and countries. Gains from trade are possible because the people become better off with trade than they would be if they could consume only those goods they could produce on their own.

• Trade patterns
  
  

About half of the world trade takes place between industrial countries. Trade between developing countries makes up only 15 percent of the total world trade. Consumer preferences and comparative advantage drive the pattern of trade.

Teaching Strategy: Have students look at Table 2. Ask them what the common characteristics of industrialized or industrializing countries are. Ask why developing countries are not major trading partners with the United States (lack of resources and infrastructure needed for trade).

• Barter and money
  
  

Barter trade is where people exchange goods for goods, or services for services, and no money changes hands. It is used when it is too costly to use money. Such is the case in Russia today; 75 percent of all exchange is barter. In most cases, however, money is used. Each country uses its own currency or a foreign currency for trade. International trade requires that countries convert their currencies into the invoicing currency. The exchange rate is the price at which a currency is converted into another currency.