Economics : The Basics! Please take notes on the following slides in your Business notebook

1. Economics : The Basics! Please take notes on the following slides in your Business notebook

2. What is Economics? • Economics-Social science which deals with scarce resource allocation (use) for attaining: • 1. society’s unlimited needs/ wants • 2. greatest/ max. satisfaction for goods/ services • Foundation rests on 2 fundamental facts: • 1. Resources = Limited • 2. Scarcity-Needs/ wants for goods/ services are unlimited but resources are limited! • Scarcity = There are not enough goods to produce all people’s wants (Not $ lack but resource lack) • Most important fact of Econ!

3. 3 Society Sectors • 1. Consumer-Person who buys product • Consumer goods (Durable/ Non-Durable) • 2. Business-Capital goods (Machinery, tools, factories, etc.) • 3. Government-Public goods (Parks, schools, highways, etc.)

4. Basic Terminology • 1. Need-Necessity for life (Food, shelter, etc.) • 2. Want-Anything for which is not need (Luxury) • Note: Need and Want are UNLIMITED • 3. Goods-Material (Clothing, automobile, food, boat, etc.) • 4. Service-Activity (Haircut, legal advice, taxi ride, etc.) • 5. Resources-(Factors/ Means of Production) Inputs that go into goods/ services production • Ex. Natural resources, labor, knowledge and capital • Resources = LIMITED

5. 4 Resource Categories • 1. Land-(“Nature’s Gifts”) Anything given by Mother Nature that is used in goods/ services production • Ex. Territory, Natural Resources (Oil, timber, iron ore, water, etc.) • 2. Labor-Man’s physical/ mental capabilities which are used in goods/ services production • 3. Capital-Anything manmade used in goods/ service production • Ex. Machinery, tools, factories, etc. • Financial Capital-$ used to buy tools/ equipment used in production • 4. Entrepreneurial Ability-Combines land, labor, capital into goods/ services production • Entrepreneur-Innovator, risk taker, and/or manager (Owner) looking to make profits

6. What’s the Goal of Economics? • Answer: Use scarce resources efficiently in effort to attain satisfaction for society’s unlimited needs, wants for goods/ services • Do best w/ what you have • People have unlimited needs and wants, and using resources wisely to suit this issue • Societies must economize • Economize-Gain society’s greatest satisfaction for needs/ wants through: • a. Full Employment-All resources employed • b. Full Production-Resources are assigned/ combined properly

7. What Must Societies Avoid? • 1. Underemployment-All resources are not employed in production • 2. Underproduction-Resources are not assigned/ combined properly • Note: Again, goal of economizing is Full Employment and Full Production!

8. 2 Broad Areas of Study in Econ • 1. Macroeconomics-Overall econ activity/ interaction between major economy sectors • 2. Microeconomics-Individual unit’s activity in economy vs.

9. 3 Basic Questions of Econ • 1. What to produce? • 2. How to produce? • 3. For whom to produce?

10. 4 Steps of Scientific Method • 1. Observe-Look at world around you • 2. Hypothesis-Make educated guess based on observation • 3. Test Hypothesis-Set up experiment to see if hypothesis is accurate or not • Perform multiple times under similar conditions to find cause and effect • 4. Accept, Revise or Reject Hypothesis • Was your hypothesis right or wrong? Why?

11. Looking at the 2 Types of Tools of Economic Reasoning • 1. Factual-Includes measurable units: • a. Statistics • b. History • c. Institutions • 2. Theoretical-Includes ideas: • a. Concepts • b. Models • c. Variables

12. Factual Tools of Econ Reasoning • 1. Statistics-2 types: • a. Data-Numbers used in Econ measurements • Ex. Production, Prices, Interest Rates, etc. • b. Methods to find data (Finding Average) • Necessary to fully understand situation to find best solution • 2. History-Using knowledge gained from stories of past to help influence present and future • Ex. Developed Countries using harmful pesticides when they were younger and less wealthy (Short term gain but long term damage • Should Less Developed Countries do same? • 3. Institutions-Decision making units, established practices/ laws and cultural behavior • Ex. Gov’t Policy, Internal Revenue Service, Military, Media, etc.

13. Theoretical Tools of Econ Reasoning • 1. Concepts-Word/ Phrase expressing Econ idea • 2. Models-Simplified representation of the real world showing relationship between 2 or more variables • Ex. Words, Math Formulas, Graphs, etc. • Variables-Quantity that changes due to changes in other related items • Ex. Price of Tractor and Amount of People Buying Tractor

14. Why Use Graphs? • Answer = Adds sense/ meaning to information • If you can understand it, you are better able to change it

15. Types of Graphs • 1. Charts-Graph that represents data/ information visually • A. Pie Chart- a circular chart showing percentages • B. Time Series-Line graph showing changes in value over time • C. Column Chart-chart using columns to show value • D. Bar Chart-Column chart turned sideways • E. Area Chart- chart using area of space to represent value • 2. Diagrams-Visual graph/model that show relationship between 2 or more variables • May or may not have values that can actually be measured

16. Pie Chart

17. Time Series

18. Column Chart

19. Bar Chart

20. Area Chart

21. Diagram

22. Direct & Inverse Relationships • Direct-Variable Relationship where as one’s value increase/ decrease so does the other (Same for Both) • Inverse-Variable relationship where as one’s value increases the other decreases (Opposite)

23. Free vs. Econ Goods • Free Good-Production/ consumption good that does not have direct cost • Economic Good-Any good/ service that sells for price (Not free)

24. What’s an Economist Do?: Econ Reasoning • 1. Analysis-Through research assumes how people/ groups will behave • Explain events • 2. Predict outcomes of what will happen under different circumstances • Ex. What will happen if people chose A over B? • 3. Value Judgment- Which is best choice to make? Why? • What’s more important, people or profits? • Recommend policy

25. Any Questions?