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Chapter One

Chapter One. What is Economics?. What is economics?. The social science dealing with the study of how people satisfy unlimited wants using scarce resources. Studies human behavior. Fundamental Economic Problem. Scarcity

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Chapter One

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  1. Chapter One What is Economics?

  2. What is economics? • The social science dealing with the study of how people satisfy unlimited wants using scarce resources. • Studies human behavior.

  3. Fundamental Economic Problem • Scarcity • Human wants are greater than the capacity of available resources to provide for those wants.

  4. Needs vs. Wants • Needs are requirements for survival. • Wants exceed needs or are ways of satisfying needs.

  5. TINSTAAFL • THERE IS NO SUCH THING AS A FREE LUNCH (TINSTAAFL) • There is always a cost for every decision (not always $$$)

  6. Three Basic Economic Questions • WHAT must we produce? (based on need) • HOW should we produce it? (based on resources) • FOR WHOM should we produce? (based on population and other markets)

  7. The Four Factors of Production • Land • Labor • Capital • Entrepreneurship

  8. LAND – society’s limited resources; “gifts of nature”

  9. LABOR – workers; all human effort, mental and physical

  10. CAPITAL – manmade tools that aid in production

  11. ENTREPRENEURSHIP • Risk-takers • Combine three factors of production. • Make production more efficient. • Develop new products and better ways of doing things.

  12. Scope of Economics • DESCRIPTION • What does the world around us look like? • Gross Domestic Product • Unemployment • Tax rates • Etc.

  13. Scope, cont. • ANALYSIS • How things work • Why things happen • Helps us deal with problems that we want to solve.

  14. Scope, cont. • EXPLANATION • Knowledge can be used to solve economic problems. • Share what we learn. • PREDICTION • Advise on future economic activities • Make better decisions

  15. Basic Economic ConceptsESSENTIAL VOCAB • Goods • Useful items; tangible • Services • Work performed for someone else • Consumers • Users of goods and services

  16. Types of Goods • Consumer – for personal use • Example – happy meal • Capital - used for production • Example – hammer, tractor

  17. Durable – lasts 3+ years. • Ex: appliances, cars • Nondurable – immediately used up Ex: – food,paper

  18. Value, Utility and Wealth

  19. Value • Worth of a good or service as determined by the market • Expressed in dollars and cents • Must be scarce and useful

  20. The Paradox of Value • What is a paradox? • The paradox of value is the contradiction that occurs when essential items have a low economic value, and nonessentials have a high economic value. • AKA the diamond/water paradox

  21. Utility • Capacity to be useful • Ability to provide satisfaction • Usually depends on person.

  22. Wealth • Having goods with value and utility. • DOES NOT INCLUDE SERVICES

  23. The Circular Flow of Economic Activity • Markets – where buyers and sellers trade • Factor Market – where people earn their incomes • Product Market – where people spend their income

  24. The Circular Flow Model

  25. Circular flow review The whole groups should complete the review the first time. Allow each group member to complete the review individually.

  26. Productivity and Economic Growth • Productivity – measure of output produced with certain inputs in a given amount of time. (think EFFICIENCY)

  27. Specialization/division of labor - improves productivity • Human capital – better skills, abilities, health and motivation improves productivity

  28. Economic Growth • High productivity • Can be affected by interdependence

  29. Make a decision • You win a $1000 door prize at the senior meeting. You narrow down your choices of what to do with the money to three : * spend it all right now in a shopping frenzy * save it for college * get ahead on all of your bills Highlight your first choice now. Label the other choices #2 and #3.

  30. Economic Choices and Decision Making • Trade-offs – choices faced when making an decision • Spend, save, pay bills • Opportunity Cost – value of what you give up when you make a choice • If you spend you give up the savings, maybe college • If you save you give up the fun

  31. Production Possibilities Frontier • Model that shows concept of opportunity cost • Possible combinations of output if all resources are being used • Classic example – consumer vs. military goods (guns v. butter). Unattainable Guns Full employment of resources Inefficient Butter

  32. PPF and Economic Growth • Curve shifts outward when there is growth • More products being produced than before • More resources, larger labor force, increased productivity

  33. Why Study Economics? • Makes you better decision-makers. • Helps you understand the world around you.

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