Economics ch.1

1. What is Economics: 1.)It is the way people make their living. 2.) The Study of the Human effort to satisfy unlimited wants and needs with limited resources. Economics ch.1

2. 2 Types of Economics • Microeconomics Ch’s 4,5,&6 • A. Economics that ideals with the behavior of small units like individuals or firms. • B. Microeconomics explain how prices are determined and individual economic decisions are made. • Macroeconomics Ch’s Ch’s 10,11,&12 • Economics that deals with the economy as a whole and decision making by large units. • Macroeconomics explains decisions in employment, growth, and labor.

3. The FUNDAMENTAL Economic problem is that of. Scarcity!! Scarcity is the condition of not having enough resources to meet all of a societies wants or needs. Fundamental Economic Problem

5. Needs: The basic requirements for living. (i.e.) Food, clothing, shelter. Wants: How we try to satisfy those needs. Something to Remember: “T.I.N.S.T.A.A.F.L.” There is NO such thing as a FREElunch. In the end, someone always pays for product…. Almost always it’s the COMSUMER. Wants vs. Needs

6. What to Produce? needs and wants based on available resources. How to Produce? Choose a method of production that is the most beneficial to the society. For Whom to Produce? Know your audience. Three Basic Economic Questions

7. Land: The Natural resources Capital: Capital Goods or the Goods used in the production of Goods and Services and Financial Capital or the Money used to buy Capital Goods. Labor: The people with all their efforts, abilities, and Skill. Entrepreneurs: The inventive and innovative risk-takers that create the products a society will produce. Four Factors of Production

8. When ALL the factors of production come together…… • We create the Goods and Services our society needs and wants to grow and prosper!!!

9. Economics is a Social Science because it deals with the behavior of people as they deal with the issue of scarcity! There are four elements to the studying of Economics. Description: we need to know what the rest of the world looks like compared to us. Analysis: we need to know why things work and how they happen, so we can better problem solve. Explanation: We have to be able to communicate what we know. Prediction: We need to be able to make choices based on consequences. Making these choices is the responsibility of all citizens. The Scope of Economics

10. Economics Basic Concepts • Economic Products are Goods and Services that are useful, relatively scarce, and transferable to others. • GOODS: Product that is economically useful or satisfies an economic want. • SERVICE: Work done for someone. Services tend to be intangible.

11. What do we Get??? Consumers: Those who use the Goods and Services to satisfy their wants and needs. Consumers indulge in Consumption, which is the process of using up Goods and Services to satisfy their wants and needs!

12. Value, Utility, and Wealth • Value is the worth of something expressed in Dollars and Cents. Paradox of Value: The situation where some necessities have little value, while some non-necessities have great value. • In order for some things to have value, they must also have UTILITY or the capacity to be useful or provide satisfaction. • Utility can vary from person to person. • Therefore Economist say for something to have real value, it must be scarce and have utility.

13. Wealth • Wealth in the economic context is the accumulation of products that are tangible, scarce, useful and transferable. • A Nations wealth is comprised of ALL items produced to include its natural resources. • While GOODS count as wealth, SEVRICES do not!

15. The Market • The Market: is a theoretical place where all items produced are bought and sold. • The Market: a location or other mechanism that allows buyers and sellers to exchange certain economic product.

16. Productivity • A measure of the amount of output produced by a given amount of inputs in a specific period of time. • Productivity goes up when you can produce more output with the same amount of inputs in the same amount of time.

17. Division of Labor and Specialization • Division of Labor When work is arranged so that individual workers do fewer task than before. • Specialization When factors of production perform task that they can do relatively more efficiently than others.

19. Human Capital • Human Capital : is the sum of the Skills, Abilities, Health, and Motivation of a Nation’s people. • Government’s roll: Education. • Businesses roll: 1.) Invest in specialized training. 2.) Motivate Employees.

21. Economic Choices and Making Decisions • Trade-Offs: Alternative choices. Weigh out the pros and cons in making a decision. • Opportunity Cost: The cost of the next best alternative use of money, time, and resources when on choice is made rather than another.

22. Opportunity Cost • O.C. is not always measured in dollars and cents. Many times it is less tangible. • Sometimes the cost of idle resources or economic growth factor into the decision making process.

23. Thinking like an Economist • The most important strategies for an Economist is the Economic Model. • The Economic Model is a simplified theory or picture of how something works. • Mostly, models reduce complex ideas to their most basic elements.

24. One thing to remember is that models are based on assumptions, or things we take for granted as true. Models can be revised. Models that prove to be true can be used again…. Others that are not as accurate must be either changed to be more accurate or discarded as false. Models!!!

25. Making those Choices • Most economist use the cost-Benefit analysis model because it compares the cost of an item to the benefits received. • The rational thing to do is to give up those actions or items of lesser value and taking things with greater value. • When you make a decision for yourself alone.. It doesn't matter what others think… but many of our decisions DO affect others, so we want to learn how to do the greatest good.

26. Conclusion • The study of Economics will make you a better decision maker AND will help you better understand the world you live in! • The study of Economics WILL NOT tell you which decisions to make??? • In a FREE society, you have the RIGHT to Succeed or Fail!

27. Money and Banking ch11 • Money is something we all take for granted. • It is something we have had around us all our lives. • Our lives would be greatly different if we didn’t have money. • The system of Money and Banking used in the U.S. Today is called The Free Market System, and those who participate in it are called Capitalist.

28. Evolution of Money • The earliest form of trade was known as the Barter System. • In a Barter System people simply traded one item for another and that works O.K. in a very primitive society. • However, as people migrated from their homes in order to find more land or better work bartering became difficult. • First, Because not all products are what other people want. • Second, not everything is easy to divide for payment.

29. A History of Economic Systems • Traditional: Barter system. • Command: Economy controlled by a central authority. • Open Market: Economy based on the private ownership of property and Entrepreneurship.

30. ENLIGHTENMENT • Enlightenment – began in Europe 1700’s - Use of reason make government and society better. - Ideas – Free Speech, Representative Government and Free Market Economics. • Settlers came to the colonies for • Greater Economic and Religious Freedoms.

31. John Locke 1690 Locke publishes his book, Two Treaties on Government. Locke believed that mankind was born with Natural Rights and those are: Life Liberty Property

32. Adam Smith Scottish Economist 1776 publishes The Wealth of Nations Opposed mercantilism, favored a Free or Open, Marketin which all goods could be bought without restraint. In the Open Market, the means of production is privately owned. Those who own the means of production are called Capitalist.

33. Money • Of Course Money can be anything as long as it meets the Function of Money. • It first must be a seen as a Medium of Exchange, it must be accepted by all parties as payment for goods and services. • It must also have a Measure of Value, that is to say it has to express worth that most people understand. • Last, the item must keep a Store of Value . Money allows a period of time to pass between earning and spending.

34. 2 types of Early Money • One Type of early Money is called Commodity Money. • This is money that has a alternative use as an economic Good. Examples of commodity money would be: Tea, Salt, Sharks teeth. • The other type of money is called Fiat Money . Or money by government decree! The Phoenicians were one of the earliest groups to use fiat money. • Because they traveled and traded through out the world they needed something that was easily carried.

35. Money in America The Economy of the Early Americans called for a mixture of bothCommodity (used to deal with the local Indians) and Fiat(used for business with Europeans like Britain, France and Spain).

36. Colonial Times • Paper Money: Individuals were allowed to print their own money. This paper had to be backed by gold or silver that was deposited in local banks and was good only in the local area. • The States printed Tax Anticipation Notes.These acted like bonds, in the sense that the state used the money to operate during the year, at the end of the year when taxes were to be paid the notes were redeemed. • The Continental Congress printed Continental Dollars. They were not backed by gold or silver, they acted like I.O.U.s from the government and became basically worthless after the war.

37. History of the Dollar • When George Washington became President in 1789, one of his first jobs was to establish an American money supply. • He assigned that task to Ben Franklin and Alexander Hamilton. • In colonial times the most plentiful coinage was the Spanish Peso. Spain had been mining silver out of Mexico for a long time and their peso was an important part of the triangular trade system. • Pesos were known as “Pieces of Eight” because they were divided into eight bits or parts. • Because they looked like the Austrian Taler, which the American colonist misspoke as Dollars! • That name became so popular that Franklin and Hamilton chose it as the name of our currency. • But they chose to divide American currency into 10parts not 8.

38. Characteristics of Money • It is also important us to understand what gives money its value. • To be considered real money, the item must be Portable. That means easily transferred from one person to another. • It must also be Durable. Able to last for some time. • Money must be Divisible into smaller units. So people can use only that which they need for their transactions. • Money, like most things will lose its value if there is to much of it so real money must be in Limited Supply.

39. Economic Systems 2 • Economic systems are Rules that govern how we answer the 3 economic questions. • An organized way of providing the Wants and Needs of a society.

40. 3 Types of Economic Systems Traditional Command Open Market

41. Traditional Economies • Economic system created out of Habit or Custom. • Habits handed down from generation to generation. These habits also dictate our social behavior. • People are not free to make decisions on what they want or like, their roles are defined by the traditions of their parents and ancestors.

42. The Command Economy • An economic system in which the economic questions are answered by a central authority or government. • Citizens have little or no control over the answers to the economic questions. • Good examples are the Communist and Mercantilist systems.

43. Open- Market System An Economic System that allows citizens to act in their own best interest. The Open-Market allows the market place to answer the Economic Questions. Examples would be The American economy. However the other prosperous world economies like Japan and Germany rely on an Open-Market.

45. To make our own economic decisions! Freedom Efficiency So the benefits gained Are greater than cost incurred! Future Goals Economic Goals of The United States Equity As our nation matures there are other goals to be added along the way! A sense of justice, impartiality and fairness! Growth Security Stability To meet the needs of a growing population! Protection from Adverse Economic Events! FullEmployment Stable Prices for budgeting and planning ! To provide as many jobs as possible!

46. Civil Rights Act of 1964: 1. Provides NO ONE shall be denied access , or refused services. (title II) 2. prohibits discrimination of any persons (title XI) 3. Forbids employers and labor unions from discrimination of peoples based on, race, color, religion, sex, age, or physical handicap in hiring and all other job related matters. (title VII)

47. Capitalism and Economic Freedom • Explore the characteristics of the Free Market, • Explain the Roles of the Entrepreneur • Consumer • Government

49. Profit Motive & Competition In a Free Market, citizens are free to risk any part of their wealth on Business ventures. The very idea of financial gain creates the Entrepreneurs, or Risk Takers. The Profit Motive is the driving force that compels people to improve their material well-being. The Profit Motive is responsible for the growth of the Free Market of Capitalist system.

50. Competition • The Market Place thrives of Competition. • Competition in economic terms is the struggle between sellers to attract consumers while lowering cost. • Because Capitalism is based on freedom and a voluntary exchange, buyers compete to find the lowest prices and product is allocated for those willing and able to pay for them.