 The

1. Unit 1 The Science of Economics

2. Macroeconomicsis the branch of economics that examinesthe behaviorof thewhole  Microeconomicsis the branchofeconomics that examinesthe choices of individuals concerningone product, onefirm,or one industry. economy at once. R

3. Economics is the study ofhow people tryto satisfywhat appearsto beseemingly unlimitedand competingwantsthrough the carefuluseofrelativelyscarce resources.

4.  Thefundamentaleconomic Scarcity is the condition that results for society not having enough resources to produce all the things people would like to have. problemfacingallsocietiesis Scarcity. R

5. A needisa basic requirementfor survival and includes food, waterand shelter. A wantisa way of expressinga need. Since a variety of wants can satisfya need, wantstend tobe broaderthan needs. 

6. There is no such thing as a free lunch

7. How manypeopletouched this product? How did thisproduct get tothe table in yourhouse? Listfromthe farmer tothe grocer. http://www.youtube.com/watch?v=l-bflQuRLbU

8. Seemingly Unlimited Wants Limited Resources SCARCITY CHOICES WHAT To Produce HOW To Produce FOR WHOM To Produce R

9. You arethe leadersof a thirdworldcountry. You  have a majorproblem: You do not haveenough resourcestofeed and take careof the healthcare needsof your people.Youmust makedecisions. Who do  10 60 85 youfeedor provide healthcare Food ? ? ? for? Healthcare ? ? ? 1 11 61 - – – years years years old old old 30% 50% 20%    You cannotexceed 1 million. 100% You have a population of 

10. What to Produce ◦Shouldtheyproduce militarygoods orfood? How to Produce ◦Shouldthey use equipmentand few people oruse more people and less equipment? For Whomto Produce ◦How are the things producedallocated?

11. Allthe processesinvolved in making wealthand bringingitfromits place of originto the ultimateconsumer. Land Labor Capital Entrepreneurship (Management)

12. Theentirematerialuniverseexclusiveof peopleandtheirproducts ◦Everything physical (other than human beings) which is not the result of human effort is within the economic definition of land. ◦  Thisconceptthus includesnotmerelythe dry surface of theearth, but allnaturalmaterials, forcesand opportunities. Thetrees in a virgin forestareland;in a cultivated forest they arewealth.  R

13. All humanexertionin theproduction of wealth ◦ Allwho participatein production by theirmentaland/or physicaleffortare laborersinthe economic sense.This would skills. include their efforts, abilities and R

14. Wealthusedto producemore wealth,or wealthin thecourse ofexchange. ◦ Amachineiswealth. Ifusedtoproduceshoes orotherwealth,themachineiswealththatis capital(capitalgood). Soalsowoulda merchant’sstock(inventory)of goodsin trade becapitalbecausethefinalexchangeisnot beencompleted. R

15. Some economistincludeworkersthat have a specialstatus becausethey are the innovatorsresponsiblefor muchof thechange in our economy. Anentrepreneur is a risk-taker in search of profits. R

16. When allfactorsof production (land, labor,capitaland entrepreneurship)arepresent, production,or the processof creatinggoodsand services,can take place.  Note!! Everythingwe produce  requirethesefactors. GDP–Thetotal production of goods andservicescreatedwithin a country duringa calendaryear.  R

17. Use thepicturesbelow. depicted? What are thefactors

18. Description ◦DescribingEconomicActivity Analysis ◦Trying to determine“why” somethinghappens Explanation ◦Using Economic theoryto explainhowthings work Prediction ◦Using Economic eventsto predictfuture economicactivity

19. Basic Economic Concepts ◦ Goods– itemsthat are economicallyusefulor satisfiesaneconomicwant ConsumerGoods–usedby individuals CapitalGood– Goodsused to produce moregoods Services– work thatis preformedforsomeone Consumer(s)– apersonwhousesa good or service ◦ ◦ R

20. Why aresome necessities,such aswater, havelittlemonetary value whilesome non-necessitieslikediamonds,havea much highervalue? ◦Economistknowthat scarcityisrequiredfor value.

21. Value –worththat can be expressedindollars Utility–the capacityto be usefuland provide satisfaction ◦ ◦ ◦ Wealth –isthe accumulationofproducts that are from tangible,scarce,useful, and transferable one person to another. R

22. A market isamechanism that allowsbuyers and sellersto exchangea certain economic product. ◦ FactorMarkets– are whereproductiveresources boughtand sold. are ◦ ProductMarkets– are where producers consumers. sell their goods and services to R

23. Circular Flow ProductMarkets $ Supply Consumer Spending Business Income Purchases Goods& Services Businesses Individuals Sell Land,Labor Capital Entrepreneurs Buy Productive Resources Paymentsfor Resources Incomefrom Resources FactorMarkets R

24. ◦ Economicgrowthoccurswhena nation’stotal output ofgoods and services increasesover time. Economicproductivity is a measure of the amount of output produced by a given amount of inputs during a specific period of time. ◦ R

25. HumanCapital isthe sumof the skills,abilities,health,and motivationofpeople. ◦Government&Businessescaninvestin humancapital(labor)byproviding education(training)andhealthcareto improvetheskillandmotivationof its workers.

26. DivisionofLabortakes place whenwork is arrangedso that individualworkersdo fewertasks thanbefore. Specializationtakes place whenfactors of do productionperformtasksthat they can others. relatively more efficiently than R

27. EconomicInterdependence meansthat we rely on others, andothersrelyon us,toprovidethe goods andservices consume. that we R

28. Take a simplewooden penciland listthe peoplethat contributed to this item from its conception to my classroom. Economic Interdependence

29. It isnot from the benevolenceof the butcher,the brewer,or the baker,that we expectour dinner, butfrom theirregardtotheir own interest. Led by an invisiblehand to promote an end which wasno part of his intention.By pursuinghisown interesthe frequentlypromotesthat of the societymoreeffectuallythan when hereallyintends to promote it.  

30. Getting cargo from pointto point, on time and ingoodcondition

31. Back in the 1700s,the Britishgovernment paid seacaptains to take felonsto Australia.About a thirdof the maleson one particularlyhorrific voyage died.The rest arrivedbeaten,starved, and sick.Imean, theywere hobblingoff,those who werelucky enough to survive.

32. ThiswasascandalbackinEngland,sothe governmenttriedtofixitwithalldifferentkinds ofrules.Forcethecaptainstobringadoctor along. Requirethemtobring lemonstoprevent  scurvy.Haveinspections. Theclergybeggedthe captains,forhumanity’s sake, totakebettercare oftheprisoners. Nodice. Raise captains’ salaries.  None ofitworked. 

33. Instead ofpayingfor each prisonerthat walkedon the shipinGreat Britain,the government should only payforeach prisonerthat walkedoffthe shipinAustralia. And infact, this wasthe suggestion whichin 1793wasadopted and implemented.And immediately,the survivalrateshot upto 99%.

34. Beforethe captains werepaid tokeepthe convictsalive, they haddifferentincentives — "likekeepfood from the prisoners,and then sellthefood inAustralia,“theywere already paidforthe prisoners. The answeristo reward the captainsfor keepingthepassengersalive,and— voila!— theyarrive alive.

35. Allocation   Whatneed willbe satisfied?  Whatresourcewillbe used?  How much of the resourcewill used? be Trade-Offs Choosingamongalternativestosatisfy allocation R

36. Every decisionwemakehas itstrade-offs or alternative choices. Whenyou makean economicdecision(achoice) opportunity areincurred. OpportunityCost cost  ◦ The value of whatyou give up when you make a choice. OpportunityBenefit The value of whatyou gain by making that choice.  ◦

37. The various combination of goods and services that aneconomycan choose to produce. When aneconomyisoperating at fullcapacity   it isoperating at maximum production. This isalsoknownas theproductionpossibilities frontier. Production possibilitieshelp us understandtheconcept of opportunitycost. 

38. 70 D 60 50 A 40 Guns B 30 E 20 C 10 0 100 200 300 400 500 600 700 0 Butter

39. Ifyou areoperatingat maximum production, the only way toproduce somethingnew you must give up the productionof anotheritem. If you have economic growthyou can push the curve outwardallowingformore totalproduction. (PopulationGrowth,ImprovingTechnology, or growth in theCapital Stockwhich areinvestments in factories,etc.) If you have idleresources(operatinginsidethe curve) you willbe abletoproduce moreof both withoutgiving up production.   

40. Costbenefitanalysisisa way to look at the benefitreceived from an economic action. A freeenterpriseeconomyisan economic systemwherebusinessand consumers answerthemajority of WHAT,HOW and WHOM questions. StandardofLivingisthe qualityof lifebased on the possessionsof the necessitiesand luxuriesthat makelifeeasier.

41. Citizenship– The study of economicshelps us become better decisionmakers. TheWorld– Economics providea framework foranalysis– a structurethat helps explain how thingsare organized.