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What is Economics?

Chapter 18. What is Economics?. What is Economics?. Economics is the study of how people make decision is a world were resources are limited. Microeconomics -deals w/ single factors and the effects of individual decisions. Macroeconomics -deals w/ large scale or general economic factors. .

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What is Economics?

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  1. Chapter 18 What is Economics?

  2. What is Economics? • Economics is the study of how people make decision is a world were resources are limited. • Microeconomics-deals w/ single factors and the effects of individual decisions. • Macroeconomics-deals w/ large scale or general economic factors.

  3. The Fundamental Economic Problem Sec. 1 • Humans have needs for survival-water, food, shelter, clothing. • They also have wants-entertainment, vacations, “extras” • There is not enough productive resources to satisfy all our wants and needs.

  4. Scarcity • Another economic problem is there are not enough resources to produce the things we need or want. • This is known as scarcity.

  5. What should be produced, how andfor whom? • First need to decide what is important and what is needed. • Then decide how we should get it and produce it. • Lastly “who” are these goods and services being produce for?

  6. Economic models • These are simplified representations of the real world that are used to explain how the economy works or predict what would happen if something in the economy should change.

  7. Making Economic DecisionsSec 2 • People must decide if the cost of something is more or less then the benefit. • This is known as “trade-offs”-alternatives faced when you choose 1 thing over another.

  8. Opportunity Costs • This is the Cost of the next best use of your time and money when you chose to do 1 thing rather then another. • This is not just money. It can be inconveniences, discomfort, etc.

  9. Other Costs • Fixed-the price of things, this does not change. • Variable costs-expenses that change with the number of products produced. • Total Cost-Fixed + Variable • Marginal-the extra cost of producing additional units

  10. Marginal Revenue/Benefits • Marginal revenue is the change in total revenue that results from selling 1 more unit. • Marginal Benefits-additional or extra benefit associated with an action

  11. Cost Benefit Analysis • Economic model that compares the marginal costs and marginal benefits of a decision to see if a decision is worth it.

  12. Being an Economically Smart CitizenSec 3 • We live in a Market Economy-a system in which supply and demand and allocation of resources help people make decisions • Most decision are made by people looking out for their own interest

  13. Capitalism Free-enterprise • Market economy based on capitalism-private citizens own most of the means of production. • It is also based on free-enterprise- compete for profit with minimal interferences from government

  14. Incentives • Economic incentives influence behaviors. • Incentives are rewards that are offered to get people to try products/services

  15. Maintain competitive market To provide services Influence people’s decision by rewarding/ punishing certain actions Government’s Role in Economy

  16. Rational Choice • Consumers make decisions based on opportunity cost. • Rational Choice is choosing the alternative that has a greater value.

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