Intro to Economics

1. Intro to Economics

2. Initial Questions… • SCARCITY…. • List 10 items in your life that are scarce. • Where does your money come from? • How does where it comes from impact what you do with it?

3. Four Laws of Scarcity • 1) In order for something to be scarce,people must first want it. • 2) In order for something to be scarce, some people who want it must be unable to get it. • 3) What is scarce is different at different times and in different places. • 4) Scarcity also involves choosing among a variety of uses for a particular resource.

4. Defining Economics • Economics: • the study of human efforts to satisfy what appears to be unlimited and competing wants through the use of scarce resources. (The science of decision making)

5. Opportunity Cost • The cost of the next best alternative use of money, time, or resources when one choice is made rather than another. • Opportunity costs are not the same for everyone. • There is no such thing as a free lunch!

6. What you must know as we move forward!!! • Rational Self-Interest: Given circumstances and preferences, people weigh the costs and benefits of choices in order to do the best they can for themselves. • Private Choices Vs. Public Choice: Markets & private goods vs. what YOU want the government to do. • Positive vs. normative economics: How it IS vs. how is SHOULD be.

7. Fundamental Economic Problem… • Need- basic requirement for survival (food) • Want- means of expressing a need (Choosing Domino’s Pizza)

8. Needs • Physical needsare things that are necessary for life • Ex. food, clothing and shelter • Collective needsare the things groups of people need. • Ex. water and sewer systems and fire and police protection • Satisfying collective needs improves people’s quality of life… Remember SimCity?

9. Wants • Psychological wants: When people want things that will make them happy or give them greater comfort of body and mind, we call these wants. • What people want depends on when and where they live.

10. Four Factors of Production • Land-All resources found in nature • Ex. deserts, fields, cattle. • Labor- People with all their efforts and abilities excluding entrepreneurs that contribute to the production of goods and services. • Ex. factory worker • Capital- The tools equipment and factories used in the production of goods and services. • Ex. Bulldozer, School • Entrepreneurial Ability- Special Talent to innovate and take advantage of business opportunities. • Ex. Manager at McDonald’s

11. Resources • Resources are what people use to make the things that satisfy their needs and wants • The three kinds of resources are • Natural resources • People made resources • Human resources

12. The Three Kinds of Resources • Natural resourcesinclude air, water, land plants, animals, minerals and other raw materials. They are also known as land resources • People-made resources include tools, factories, machinery and even computers. They are also know as capital resourcesor capital goods • Human resourcesinclude the work that people can do, their energy, their ideas, their training and their skills also called labor resources

13. Fallacy of Composition • What is true for the individual may not be true for the whole.

14. The Two Branches of Economics • Micro- examines choices of individuals concerning one product, firm or industry. • Ex. How one person deals with gas prices. • Macro-examines behavior of whole economy at once. • Ex. How the Government deals with higher gas prices. • Trade, Unemployment.

15. Three Basic Questions • What to Produce? • How to Produce? • For whom to Produce?

16. Economic Systems • Method used by a society to produce and distribute goods.

17. MarketEconomy- decisions are made by free markets (capitalism) • Command Economy- government is in command of the economy and decides how to answer the three questions. (communist) • Mixed Economy- Market Systems with limited Government Intervention. • Traditional Economy- relies on custom or ritual to answer the three questions.