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Chapter 1 The Economic Problem. These slides supplement the textbook, but should not replace reading the textbook. What is the Economic Problem?. Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?.
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Chapter 1The Economic Problem These slides supplement the textbook, but should not replace reading the textbook
What is theEconomic Problem? Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?
What is a good? A tangible item that is used to satisfy wants
What is a service? An intangible activity that is used to satisfy wants
What is afree good or service? There is enough of a good or service to go around to everyone who wants it for free
What is a Scarce Good or Service? There is not enough of a good or service to go around to everyone who wants it for free
What is a resource? Something that is used to produce goods and services
Who gets when a good is scarce? Consumers who have the money and want it the most
What is a market? A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms
How do we solve the allocation problem in a free market? Buyers and sellers compete in the market
What assumption do we make concerning the market? Economists only consider market transactions.
Who gets when a good is scarce? Consumers who have the money and want it the most
Who wasAdam Smith? He wrote the Wealth of Nations in 1776 – known as the father of modern day economics.
According to Adam Smith, what is the invisible hand? Self interest will guide the economy to produce what we want and offer us reasonable prices
What was the main idea of the Wealth of Nations by Adam Smith 1776? Everyone would benefit from less government and free trade
Is Self Interest a greedy concept? In a free market you get what you want by helping other people get what they want.
What is thePrice Mechanism? Prices: • Convey information • Give incentives • Enables producers the financial capital to satisfy consumers wants and needs.
What assumption do economists always make? When price changes nothing else changes.
What isNormative Economics? Opinions or value judgments are made
What isPositive Economics? Explains cause and effect.
What are 2 common pitfalls to avoid? • Correlation with causation. • Fallacy of composition.
What are the factors of production (resources)? • Land • Labor • Capital • Entrepreneurship
What is land? Plots of ground and other natural resources used to produce goods and services
What islabor? The physical and mental efforts of humans used to produce goods and services
What is capital? Buildings, equipment, and human skills used to produce goods and services
What is human capital? The skills used to work with capital
What does money allow you to do? Make choices
What isentrepreneurial ability? Managerial and organizational skills combined with the willingness to take risks
What are characteristics of Entrepreneurs? • has a dream • overcomes obstacles • delayed gratification • is a risk taker • strives to be unimportant • understands the process of duplication >
Why can the entrepreneur have more free time, make more money, and have more security than an employee? A business owner can duplicate himself
How can you duplicate yourself? • employees • rental property • savings in a bank • owning shares of stock
Why is Duplication the flip side of debt? Life is either an adding to or a taking away, growth is adding to, not growing is taking away
What are two basic laws of entrepreneurship? • What ever you have you will be given more, and what you do not have will be taken away • Whatever you give away you keep and whatever you keep you lose
What is the first law of wealth building? Pay yourself first
What is the name of the book that explains the principles of wealth building? The Richest Man in Babylon, 1926, by George S. Clason
What is the name of the book that explores wealthy characteristics? The Millionaire Next Door, 1996, Stanley & Danko
What does the term “Equilibrium” mean? A tendency toward
What is the Austrian view of equilibrium? Austrians believe that a free market will seek full employment
What is the Keynesian view of equilibrium? The economy could tend toward a less than full employment equilbium
What is the Austrian view of growth? Sustainable growth depends on savings, exports, and investments
What is the Keynesian view of growth? • Demand management • Large public sector • Wealth redistribution • Minimum wage laws • National debt
What about planning? Austrians have a negative view toward planning – Keynesians embrace planning policies
What is the“rule of law”? The willingness of a people to submit themselves to the law; there is a respect and adherence to the law 43
What is the“rule of man”? The practice of putting oneself above the law when one has the power to do so 44