Basic Econ Concepts

1. BasicEconConcepts

2. What is Economics? • Most people aren’t satisfied • Constant competition w/ others • The problem is that resources are scarce

3. Economics is the science of scarcity • Scarcity- when our wants are greater than our limited resources • We can’t have everything we desire, so we must make choices • Economists study choices

4. Ex: • We choose between buying jeans or shoes • Businesses choose how many people to hire • Governments choose how much to spend on welfare • Economics- The study of how people satisfy unlimited & competing wants with the use of scarce resources

5. Needs&Wants • Dealing w/ scarcity requires differentiating between needs & wants • Needs- basic requirements for survival (food, clothing, shelter, etc) • Want- way of expressing a need • You NEED food, you WANT??? • You NEED clothes, you WANT???

6. Since resources are scarce, everything we do has a cost • Nothing is free • Cut costs in one area, means raised cost in another • Buy 2, get 1 free…Mhmmmmm

7. 3 Econ Questions • Because of scarcity, we have to make wise decisions • What, How, & For Whom???

8. What to produce? • Focus on military equipment or food • Oil or Housing? • Societies cant have everything people want, so they must decide WHAT to produce

9. HOW to produce? • Mass production w/ lots of equipment & few workers? • Less equipment & more workers? • Technology saves $$$, reaches more people, but takes away jobs

10. FOR WHOM to produce??? • Ex. If you produce housing, who are you making it for? • Workers, professional people, government employees?

11. Key Economic Assumptions • Society’s wants are unlimited, but ALL resources are limited (scarcity) • Due to scarcity, choices must be made. Every choice has a cost (a trade-off) • Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” • Everyone acts rationally by comparing the costs and benefits of every choice

13. Scarcity vs Shortage • Scarcity occurs at all times for all goods • Shortages - when producers won’t/can’t offer goods or services at current prices • Shortages are temporary • https://www.youtube.com/watch?v=On9WRrFHVjY

14. Price vs Cost • What’s the price? vs. How much does that cost? • Price- Amount buyer/ consumer pays • Cost- Amount seller pays to produce a good • Investment= the money spent by BUSINESSES to improve their production (ex. Music industry)

15. Goods vs. Services • Goods- physical objects that satisfy needs and wants 1. Consumer Goods- created for final use by individual 2. Capital Goods- manufactured goods used to produce other goods & services • Services- actions or activities one person performs for another (teaching, cleaning, cooking)

16. The 4 Factors of Production • Producing goods and services requires the use of resources • ALL resources can be classified as one of the following 4 factors of production: • Land, Labor, Capitol, Entreprenuership

17. Land - All natural resources used to produce goods and services • Anything from “mother nature” • Labor – People w/ their efforts, abilities, & skills

18. Capital- tools, equipment, machinery, etc., used in the production of goods & services 1. Physical Capital- human-made resources used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) 2. Human Capital- skills or knowledge gained by a worker through education and experience

20. Entrepreneurship-risk takers that combine the factors of production to create goods and services. • Examples-Henry Ford, Bill Gates, Jay Z