Chapter 1

1. Chapter 1 What is Economics?

2. OBJECTIVES Define economics and its fundamental principles. Differentiate between needs and wants. Analyze circular flow of economics. Examine productivity and economic growth. Apply concepts of choice and opportunity cost to economic decision-making. Economics-Biba S. Kavass 2010

3. THOUGHT PROVOKING? Why do you think you are required to study Economics in order to graduate from high school? Economics-Biba S. Kavass 2010

4. DEFINITION OF ECONOMICS Study of how people use limited resources to satisfy unlimited wants and needs. Economics-Biba S. Kavass 2010

5. Fundamental Economic Problem Limited Resources + Unlimited Wants and Needs = Scarcity Make Choices Economics-Biba S. Kavass 2010

6. Needs and Wants Economics-Biba S. Kavass 2010 Need – basic requirement for survival – food, clothing, shelter Want – something we would like to have but necessary for survival – IPOD, race car, cell phone

7. Is it a Want or a Need? Economics-Biba S. Kavass 2010 Tap Water Bottled Water Mink Coat Regular Coat Sonic Hamburger PBJ Sandwich Ford Focus Mercedes Benz

8. THOUGHT PROVOKING? Why is a want to one person a need to another person? Economics-Biba S. Kavass 2010

9. 3 Basic Economic Questions WHAT TO PRODUCE? HOW TO PRODUCE? FOR WHOM TO PRODUCE? Economics-Biba S. Kavass 2010

10. Factors of Production Economics-Biba S. Kavass 2010

11. ECONOMIC PREDICTIONS With a partner, make an economic prediction on the following scenario: Now that summer is over, what do you think will happen with gasoline prices between August and December? Economics-Biba S. Kavass 2010

12. CONCEPT REVIEW • What is the definition of economics? • What is the fundamental economic problem? • What is the difference between a need and a want? • What are the 3 basic economic questions? • What are the 4 factors of production? Give an example of each. • Why do we have scarcity in our world? Economics-Biba S. Kavass 2010

13. BASIC ECONOMIC CONCEPTS Economics-Biba S. Kavass 2010

14. GOODS AND SERVICES • Good – useful, tangible item that satisfies a want – book, car, cell phone • Consumer Good – intended for final use by individuals • Durable Good – any good that last 3 or more years (ex. Automobile or robot welder) • Non-durable Good – item that lasts 3 years or less (ex. Paper, food, clothing) • Service – work that is performed for someone • Haircut, Accountant, Babysitter Economics-Biba S. Kavass 2010

15. Consumers People or entities who consume goods and services to satisfy wants and needs. INDIVIDUALS GOVERNMENT BUSINESSES Economics-Biba S. Kavass 2010

16. Value, Utility, and Wealth • Value – worth that can be expressed in dollars and cents. • Paradox of Value - some necessities have less monetary value than some non-necessities (ex. Water vs. diamonds) • Utility - to be useful and provide satisfaction • Wealth – accumulation of products that are tangible, scarce, useful, and transferrable from one person to another. Economics-Biba S. Kavass 2010

17. THOUGHT PROVOKING? Why do you think that some goods are more valuable than others? Economics-Biba S. Kavass 2010

18. Circular Flow of Economic Activity Economics-Biba S. Kavass 2010

19. Markets • Factor Market – where factors of production are bought and sold. • Hire labor • Acquire land/buildings in return for rent • Borrow money • Product Market – where producers sell goods and services • Markets create economic activity that connects individuals and businesses. Economics-Biba S. Kavass 2010

20. ECONOMIC PREDICTIONS What factors might determine economic growth? Economics-Biba S. Kavass 2010

21. Economic Growth • Occurs when a nation’s total output of goods and services increases over times. Economics-Biba S. Kavass 2010

22. Factors Contributing to Economic Growth • Productivity – measure of amount of G/S produced within a specific period of time • Human Capital – the sum of people’s skills, abilities, health, knowledge, and motivation. • Division of Labor – a way of organizing work so that each worker completes a separate part of the work. • Specialization – perform only tasks that they can do better or more efficiently. • Economic Interdependence – mutual dependency on others for goods and services. Economics-Biba S. Kavass 2010

23. Effect of Education on Income Economics-Biba S. Kavass 2010

24. THOUGHT PROVOKING? How is a population with a higher level education beneficial to that country’s economic growth? Economics-Biba S. Kavass 2010

25. Division of Labor – labor becomes more productive as each worker becomes more skilled at a single job. Invisible Hand– competition and individual self-interest will guide resources to their most productive uses. Role of government should be limited. (Laissez-faire = let it be) Wealth of Nations– defined as the sum of goods produced by labor, not the personal financial wealth of those that owned them. Economics-Biba S. Kavass 2010

26. ECONOMIC CHOICES Economics-Biba S. Kavass 2010

27. TRADE-OFF Alternative choice or choices Name a trade-off or choice that you have had to make this week. Economics-Biba S. Kavass 2010

28. OPPORTUNITY COST • Value of the next best choice or the next highest valued alternative use of that resource. • Example: Choosing between seeing a movie or staying at home and reading a book. If you choose the movie, you can not spend that time at home reading a book and you can not spend the money spent on the movie on something else. Your opportunity cost is 1) money spent on movie, 2) time spent at the movies, and 3) knowledge and pleasure you forgo by not reading the book. Economics-Biba S. Kavass 2010

29. CONCEPT REVIEW • Define goods and services. • Describe three types of goods. • Describe a consumer. • What does the value of a good or service depend on? • Describe factor markets and product markets. • Discuss the factors contributing to economic growth. • Differentiate between trade-off and opportunity cost. Economics-Biba S. Kavass 2010