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ECONOMICS

ECONOMICS. What is it?? Hmmmmm ??. ECONOMICS. Book Definition: How people choose to use limited resources in an effort to satisfy unlimited wants. Economics. Choices. . . What to buy, what not to buy. . Should I spend time reading this, or go on Youtube and watch a funny video.. .

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ECONOMICS

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  1. ECONOMICS What is it?? Hmmmmm ??

  2. ECONOMICS Book Definition: How people choose to use limited resources in an effort to satisfy unlimited wants

  3. Economics • Choices. . . What to buy, what not to buy. . • Should I spend time reading this, or go on Youtube and watch a funny video.. . • Should I get a job this semester or concentrate on my classes. . . • This is an everyday definition of Economics.

  4. SCARCITY The problem of limited resources and unlimited wants. This is the essential economic problem everyone has, even Bill Gates.

  5. A resource or goodis scarce if: • people want it • there is not enough of it to fulfill everyone’s wants • it has alternative uses • using it one way means giving up using it another way

  6. Two Basic Questions Everyone has. . . • What do I need and What do I want? You need to know. . . What is the difference between a need and a want?

  7. A Need • Textbook Definition: a basic requirement for survival- food, clothing, shelter.

  8. A Want • Textbook Definition- A way you express your needs • Huh? What does that mean?

  9. Need vs. Want • You need to eat • You want a Doughnut • You don’t need a Doughnut. . Some broccoli would work just as well. . But you WANT a doughnut • The doughnut is how you’ve expressed your need to eat.

  10. In Economics some words have very specific meanings outside of how we normally use them. • For example- the word Cost • In the regular world- the word cost means, the price of something you buy. • In Economics- the word Cost means Consequence. • You need to know the meaning of the word Cost

  11. TINSTAAFL • “There is no Such thing as a free lunch.” • When you make a choice, you usually give something up. • For example, let’s say you have a dollar

  12. With your dollar you have two options • A Candy Bar or A Soda • You can only buy one of the two options with your dollar

  13. If you chose the Candy bar • A Candy Bar No Soda for you

  14. If you choose the soda No Candy for you

  15. You can’t have both • By choosing one, you give up the other. • Whatever you did not choose, that was the cost (consequence) of your choice.

  16. 3 BASIC ECONOMIC QUESTIONS • WHAT GOODS & SERVICES SHALL BE PRODUCED? • HOW SHALL THEY BE PRODUCED? • FOR WHOM SHALL THEY BE PRODUCED? • Everyone has to answer these three questions for everything that they do.

  17. Three Question Example • You want to make a peanut butter sandwich for a snack • You’ve just answered the first basic Economic question- WHAT GOODS & SERVICES SHALL BE PRODUCED?- Answer- A peanut butter sandwich

  18. So what do you do. . • Get out the bread, spread peanut butter on one piece, jelly on the other and put them together. • You’ve just answered the second basic economic question- HOW SHALL THEY BE PRODUCED?

  19. Then you eat it. . . • You’ve just answered the third basic economic question- FOR WHOM SHALL THEY BE PRODUCED? For yourself !

  20. WHAT GOODS & SERVICES SHALL BE PRODUCED? • HOW SHALL THEY BE PRODUCED? • FOR WHOM SHALL THEY BE PRODUCED? • Every person • Every business • Every country • All must be able to answer these questions, if they can’t -people die, businesses go broke, countries collapse.

  21. LIMITED RESOURCES(We can’t always get what we want) • Think of three things that you want but cannot afford. • Think of three things you wish were in Woodland • Think of three things that America needs but must obtain from another country

  22. Possible Answers • For yourself- A car, clothes, more food, I-pod, computer • For Woodland- A better Mall, a Zoo, a theme park, cheaper housing • For America- Oil, Electronics, Cars, • We can’t have everything due to scarcity, we must specialize based on what we have to work with.

  23. There are four basic elements that go into any type decision making, business or country. FACTORS OF PRODUCTION • NATURAL RESOURCES • CAPITAL GOODS • LABOR • ENTREPRENEURSHIP

  24. NATURAL RESOURCES • THINGS PROVIDED BY NATURE • For example- the peanut butter for your sandwich. • LAND, AIR, WATER, FORESTS, COAL, IRON ORE, OIL, ETC. • AN ECONOMY CANNOT CREATE GOODS IF IT LACKS NATURAL RESOURCES.

  25. CAPITAL GOODS • HUMAN MADE RESOURCES THAT ARE USED FOR PRODUCTION. • For example- the knife used to spread the peanut butter, you can’t eat it, but you need it for the sandwich process to work. • FACTORIES, MACHINES, TRUCKS, BUSINESS BUILDINGS. • THINGS THAT A BUSINESS USES TO MAKE ITEMS THAT WILL BE SOLD TO A CONSUMER.

  26. LABOR • HUMAN RESOURCES • THE HUMAN EFFORT USED IN PRODUCTION. • For example- you making the sandwich

  27. ENTREPRENEURSHIP • INDIVIDUALS WHO USE CREATIVITY AND KNOW HOW TO CREATE A BUSINESS. • THEY ASSUME THE RISK OF FAILURE. • For example- you deciding to make a sandwich. If you decide to sell your sandwich, you might make money, you might not. That’s the risk.

  28. Some MisconceptionsCorrected • Not resources – Time – Money • Economics and Finance are not the same – Economics is about resources – Finance is about money – Finance is an application of economic reasoning

  29. More Terms to know • A Good - an item that is economically useful or that satisfies an economic want. • An example- A car, I-pod, soda, pants • Note- A Capital good is an item used to produce another good- knife for peanut butter.

  30. A Service – work performed for someone • Example- haircut, oil change, teeth cleaning, brain surgery. • You can’t hold a haircut, but you can get one.

  31. Consumer- Me, you, everyone. • People who use goods and services to satisfy wants and needs.

  32. Question Time. . . • What makes something valuable? • Value means- Worth that can be expressed in dollars and cents.

  33. Are you valuable to your parents?? • How much are you worth to them? • Can they express what you are worth in money ?? • Odd questions. . .

  34. Value in Economics doesn’t have anything to do with emotions, strictly dollars. • Currently you cost your parents just over an estimated 7500 dollars a year in food, housing, and medical expenses. • Next year, the number goes up when you include college tuition.

  35. Paradox of Value • Which is more valuable- • A Diamond Ring or a Flat Screen TV

  36. Paradox of Value • Let’s be honest- Many guys would say the TV, and many girls would choose the ring. • Who is right?

  37. Another Term • Utility – the capacity to be useful. • For example in a utlity closet you find all sorts of useful things- brooms, mops, sponges etc. .

  38. Paradox of Value • Now. . Which one has more utility ? • How is a Diamond Ring useful? • How is a TV useful?

  39. Paradox of Value • TVs do have more utlity than a Diamond ring, unless you’re trapped in a glass box and have to cut your way out. • Generally, we assign more value to a Diamond. • This is known as the Paradox of Value- Assigning value to items with little utility, but high scarcity.

  40. Making Economic Decisions • For every decision you have choices, some big, some small, sometimes you have many, other times you have only a few. • Term: Trade-off – any alternative choice.

  41. OPPORTUNITY COST The next best alternative use of a resource that is given up when a decision is made to use resources in a particular way.

  42. Back to the Candy Purchase • Snickers or Skittles • Let’s presume, that if Bel-Air was out of Snickers, your next choice for candy would be Skittles.

  43. If you had to choose between the two: • Snickers or Skittles • If Bel-Air had both in stock, and you chose Snickers, your Opportunity Cost would be the Skittles, since you can’t buy both.

  44. Illustrating Opportunity Cost. • You can’t buy everything you want • Countries can’t produce everything they need. • In Economics, we use graphs to explain the range of choices in any decision.

  45. Ok. . An Odd example. . . (I really didn’t make this one up) • Suppose there is an imaginary country.. . • In this country, they are very productive, but not very creative. They can only make two things: Guns and Butter

  46. As President, you can order your people to make Guns, Butter or both at the same time.

  47. If you order everyone to make Guns, they can produce a maximum of 50 Guns • If you order everyone to make Butter, they can make a maximum of 50 Butter.

  48. If you had to graph your options it would look like this • 50 Point A Point A represents Everyone producing Guns Point B represents Everyone producing Butter Guns Point B 0 Butter 50

  49. If you had to graph your options it would look like this • 50 Point A represents Everyone producing Guns Point B represents Everyone producing Butter Point C represents ½ of your population producing Guns, and the other ½ producing Butter Point A Guns Point C Point B 0 Butter 50

  50. The Curve is called a Production Possibilities Curve or Production Possibilities Frontier • 50 The Curve represents all possible options that you have. In this case, how much guns or butter you can produce. Point A Guns Point C Point B 0 Butter 50

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