What is Economics?

1. What is Economics?

2. Definition of Economics • Economics: The study of human efforts to satisfy unlimited and competing wants through the careful use of scarce resources. • The more scarce, or rare, something is, the more valuable it becomes. • The more desired an object is, the more valuable it becomes. • Scarcity drives economies by creating a want/need for something that not everyone can have. • Economics traces all of these factors and see how people and systems interact with these resources.

3. PARENTS STAKE OUT BEANIE BABIES STORE; TOYS DRAW HORDE TO VALENCIA SHOP. • Lynn Feldman scoped out the area at around midnight Friday and later returned with a couple of her buddies at about 4:30 a.m. Saturday. The trio wanted to know just what kind of wait they would have to endure to acquire what is shaping up as this year's version of the Tickle Me Elmo doll. The Beanie Baby craze hit the Santa Clarita Valley as hundreds of people lined up outside Cobblestone Cottage, a shop on Magic Mountain Parkway in Valencia. Feldman, Frank Adella and Claudette Plante were the first parents on the scene and the first to make a purchase. ``Well, when we saw the big ad in the paper the other day, we knew everyone would be here,'' Feldman said. The Valencia woman said her husband drove by at midnight with sleeping bags anticipating a huge crowd. ``We want to get these for our kids. Last year they didn't want Elmo but they do want the Beanie Babies.'' During the 1996 holiday season, shoppers staked out various stores and malls for a chance to buy the Sesame Street character, Tickle Me Elmo. The Beanie Babies weigh 4.7 ounces and measure a scant 8 inches long. Shoppers at Cobblestone were allowed to purchase up to six Beanie Babies for $5.50 each and a canned-food donation for each purchase was also required. Kathy Allie, the store's owner, said she wanted to find a way to help the valley Food Pantry and thought this was the ticket. ``We thought about how much food we'd get for the pantry if we did this and said do it,'' Allie said. As the crowd began to reach as far back as McBean Parkway, store personnel buzzed with excitement. ``We had a feeling that we'd have a long line and now we realize just how much of a line we have. It's exciting,'' said Denae Allie, Kathy's daughter and co-worker. For the past year, Cobblestone Cottage has received about 50 calls each day from children and adults alike, asking whether a new shipment has arrived. Saturday a supply of 8,000 new Beanies arrived. With such a large crowd, the store was forced to set up shop outside its small building. The crowd cheered each time a new Beanie Baby was unveiled. New toys included 1997 Teddy and Peace the Bear. The phenomenon even bought celebrities out. Lisa Cauble, who starred as Blair in the 1980s television show, ``The Facts of Life,'' arrived with three children in tow. ``I had no idea it would be like this, I guess we'll have to come back because the kids are not feeling too well,'' Cauble said. Made in China for Ty Inc. - an Oak Brook, Ill., toy company named for founder Ty Warner - Beanie Babies were introduced in 1994 and caught on steadily. Several new characters are introduced each year, and production has halted on older varieties. Of the 124 different Beanie Babies that have been produced, 78 characters are still being made and sold, while the other 46 have been retired. Plante said she has several of the characters including Flamingo, Velvet the Panther, Lizzy the Gecko, and Rover the Red Dog. ``A lot of the babies are retired and if you try to go to places like the swap meet they are asking $100 for them,'' Plante said.

4. The Fundamental Economic Problem • Scarcity: when society does not have enough resources to produce all the things people would like to have

5. Factors of Production • Factors of Production are those things needed for economics. There are four factors. • These factors help produce the scarcity of resources needed. • These factors also provide the means for a society to distribute these goods and services. • Land: Natural resources not created by human effort (minerals, forests, etc) • Capital: Tools, equipment, and factories used in the production of goods and services • Labor: People with all their efforts, abilities, and skills • Entrepreneurs: Risk-takers in search of profits

6. Question Time • 1. What is scarcity? • 2. Why does something need to be scarce to have value? • 3. What are the 4 factors of production?

7. Three Basic Questions for any Society • What to produce? • How to produce? • For whom to produce?

8. The Meaning and Scope of Economics • As a social science, Economics has to examine and study the human efforts of these competing and unlimited wants in regards to the scarcity of resources. • There are four major focuses of economics. • Description (what is produced, unemployment, inflation, etc) • Analysis (Why are prices and wages higher in some places than in others?) • Explanation (communicating this knowledge to others) • Prediction (anticipating the likely consequences of different courses of action)

9. Trade-Offs Among Alternatives • Trade-Offs: Alternative choices that exist because people cannot have everything they want. • This applies to individuals, business, and government. • Many times, individuals, companies, and even the government, have to decide what to spend their limited amount of resources on. • Sometimes, they need to do a pros-cons list to determine what is most important.

10. Opportunity Cost • Opportunity Cost: The cost of the next best alternative use of money, time or resources when one choice is made rather than the other. • When looking at a tradeoff, we can see what will be the best use of our resources and go with that. Whatever has the better opportunity cost is the better decision. • Time is one of the biggest factors of cost.

12. The Production Possibilities Frontier • Popular model economists use to illustrated the concept of opportunity cost. • This model shows what the possibilities of production can be when all factors of production are fully employed. • “Guns v. Butter” example.

13. Question Time • 4. What are the 3 basic questions for a society when it comes to production? • 5. Define guns vs. butter. • 6.What is a trade off? • 7. Give an example of a trade off you’ve had to make?

14. Needs and Wants • When it comes to economics, some things boil down to our basic needs and wants. • A need is a basic requirement for survival. i.e. food, clothing, water, and shelter. It is something that you absolutely have to have for existence. • A want is a means of expressing a need. It is a desire. • I need food, so I want pizza. Abraham Maslow Need Model

15. Goods • A good is a tangible (real) commodity. • Consumer Goods are intended for final use by a consumer. These include things like: Books, Cars, DVD players, etc. • Capital Goods are manufactured goods used to produce other goods and services. These include: bakery oven, robot welder, computer • Durable V. Non Durable: Durable lasts >3 years, Non-Durable lasts <3 years (food and clothing) • Planned obsolescence.

16. Services • Work that is performed for someone. • Haircuts, tax advice, car repairs, etc. • Includes work done by teachers, lawyers, doctors, etc • Services Largest job industry in the USA. • Many jobs are low paying.

17. Consumers • Consumers: People who use goods and services to satisfy needs and wants • Conspicuous Consumption: the use of a good or service to impress someone

18. Value, Utility, and Wealth • Value: Something that has a worth that can be expressed in dollars and cents • What about sentimental value? • The paradox of value: water and diamonds. • Utility: The capacity to be useful. Varies from one person to the next. • Wealth: Sum of economic products that are tangible, scarce, useable, and transferable from one person to another. • Scarcity can create value, but not by itself. There must be a desire to have the good. • Without a demand, the item is worthless. • Things are only as valuable as some else sees it.

19. Productivity • Production: process of creating goods and services. Labor, land, entrepreneurship and capital must be present. • Productivity: Efficient use of productive resources. Goes up when output increases with the same amount of inputs. • Specialization of Labor: When workers perform fewer tasks more frequently. • Human Capital: Sum of skills, abilities, health, and motivation of people.

20. Economic Interdependence • Actions in one part of the country or the world have an impact on the USA. • Bad weather, war, etc can impact prices (OJ, oil, etc.) • Market: Where a certain product is sold. • Factor Market: Where labor is hired, land is bought and sold, and money is loaned. • Product Market: Where producers offer goods and products for sale. • Free Enterprise Economy: When consumers make the majority of what, how, and for whom decisions.

21. Question Time • 8. What is the difference between a want and a need? • 9. How does planned obsolescence work? • 10. How can markets interact with each other? • 11. Define value.