ABSTRACT
This chapter provides a self-guided short course in basic economic theory. It begins by developing the notion of scarcity and tradeoffs with a simple production possibility frontier framework, and it uses this framework to introduce the foundational economic concept of opportunity cost. It then introduces the idea that navigating tradeoffs successfully entails carefully weighing costs and benefits, and a way to make this extremely useful by measuring costs and benefits on the marginal. This is a particular example that we call marginal thinking. The market model is then introduced as a foundational economic concept, and students are led through a discussion of how to use and interpret it. Based on this discussion, we then introduce a couple of important real world cases that show the limitations of the market model: market power and externalities. The discussion concludes with intertemporal allocation, presenting a simple two-period model and deriving some important results in the efficiency of markets in allocating goods over time (dynamic efficiency).
