Intro to Economics

1. Intro to Economics Chapter 1-3

2. What is economics? • The balance between acquiring what we “need” and what we “want” through financial choices. • Scarcity: limited ______ (money, resources) • Goods: objects we acquire • Services: actions or activities performed

3. What creates goods and services? Factors of production: • Land: Resources (stuff) used to make products (other stuff) • Ex: Coffee cup = molded plastic, ink, • Labor: effort or work of humans to make products (stuff). • Ex: Coffee cup = someone runs machines to mold cup, someone packages cups into boxes, someone ships boxes, someone unpacks boxes, someone prices cups, someone runs the cash register and takes your money. • Capital: human made resources and services used to make the stuff. • Ex: coffee cup = machines to mold the plastic, the price gun to put the price tag, the cash register to hold the money, classes taken to know how to use the machines.

4. Opportunity Cost: Making decisions:We compare the cost to the benefit to make a decision. • Trade offs= giving something up to gain something else. • Individual: giving up a concert to save for a new car • Businesses: minimizing advertising costs to keep people hired. • Society: more money devoted to the military means less money for education. Can you do both? Of course! This is called Cost and Benefit at the Margin Ex: Choose a cheaper concert and put a little money away for a car. Ex: Only advertise in newspapers and not on TV Ex: Divide money between military and education.

5. 10 The more shoes you buy the less concerts you can afford. Of course, the cost of the shoes may not be equal to the cost of the concert tickets. You have to make a trade-off or decision! Shoes 10 0 Concert tickets

6. Chapter 2: Economic Systems • What should you make? • How should you make it? • Who is gonna buy it? • The answer is decided by “economic systems”

7. Factor payments: • Who can afford the product? • Based on INCOME… how much money you have • Ex: If I make $10 an hour, I can not afford the payments on a Lamborghini • Ex: Don’t make Lamborghinis appealing to teenagers… target the wealthy, older buyers • Ex: make cars more affordable. • 1 lamborghini • 10 Toyota Corrolas

8. Economic Goals and Values • In addition to income, we produce and buy things based on other factors: • Economic efficiency: will it make my life better? • CD’s versus MP3s • A blender versus a Kitchen-Aid mixer • An iPhone versus a Samsung Galaxy III • Economic Freedom and Patriotism • Buy American? Buy at Walmart? • Economic Security and Predictability • I predict milk and gasoline will always be available • I predict iPhone’s will eventually go away • Economic Equity • Welfare programs (taxes) and aid to help others including social security, disability insurance, medicare, personal health insurance, etc. • Growth and Innovation • Investment in products and services that improve our Standard of Living including environmental improvements,

9. Types of Economies • Traditional: small and close communities (farming, Amish, small town America) • We make it this way because we have always made it this way • Market Economies: What is produced is based on demand of products and services • Constantly changing and evolving based on needs, wants, and innovation • Command Economies: Totalitarian-like; decisions are made based on the government; usually basic needs and military development • Mixed Economies: market economies mixed with command economies– this is most closely like the United States. The government plays a limited role in an otherwise open and free market.

10. Free Markets: The Invisible Hand • Markets are needed so we can specialize and “trade” for products and services. • We are constantly in a struggle with the market. • Buyer “Household” versus Business “firm” • We want to work as little as possible but get paid the most we can so we can buy the most stuff. • Businesses want to pay as little as possible but get as much stuff made so they can sell and make profit • Incentives (reward for buying) and competition (producers fight to get our business) lead us to spend our money in certain ways

11. American Free Enterprise • Do you have a guarantee to have money? • You have a right to life, liberty, and the pursuit of happiness. • Constitution says: property rights and taxation • No one says you have a right to have money, we guarantee equal opportunity to work and make money. • SO can the market be a free for all?

12. Macro-economics versus Micro-economics • Macro (large) economics: Entire economy, patterns, trends • Micro (small) economics: looks at specific markets • Government studies look at Macro and Micro to determine the GDP (gross domestic product): value of U.S. economy. • (This is how they know if we are in a recession, depression, recovery, strong economy)

13. Vocabulary: • Profit motive: motivated to make money in an efficient way • Open opportunity: everyone can work and buy stuff • Legal equality: no prejudice based on race, religion, gender, creed, or orientation • Private property rights: control your own stuff • Free contract: no slavery; cannot be forced to work or agree to a contract • Voluntary exchange: “right to refuse service”; can buy from who I want • Competition: rivalry between sellers to get business keeps costs low and offers a variety

14. You are the consumer when you are buying in the marketplace • Interest groups can pressure companies to make certain products • (demand for organic foods changed the food industry) • Products cannot break the law • No drug dealers are not protected by law • Prostitution is not protected in a variety of states • Government regulates basic health and safety standards • FDA, FAA, OSHA • No chopped off body parts in a meat factory • No diseased cows • No pesticides or hormones in food • Warning labels

15. The market always fluxuates • Business cycle: markets go from strong to weak, make adjustments and cycle again. • Ex: iPhone sales were up in 2009 when new models were released • Ex: iPhone sales dropped in 2012 with the introduction of Samsung products… • What should Apple do?

16. Government involvement to keep economy stable? • Employment in government positions • Unemployment insurance to help people in between jobs • Growth of the GDP through government loans and grants • Stability: help keep critical markets stable with government regulations • EX: the price of milk is regulated so milk farmers can make a profit and families can give children milk • Invest in technology • Government is big on solar energy right now • Government will give loans to entrepreneurs • Governments use taxes towards public goods and services that help all people in society. • Roads, dams, schools, space program, CPS, • This is both good and bad! Read about it in Chapter 3, Section 3. • Welfare services, WIC, health care, free and reduced lunches,