UNIT 7 INTRODUCTION TO ECONOMICS

1. UNIT 7INTRODUCTION TO ECONOMICS

2. Scarcity

3. Warm-Up • List all of the things this school would have it was perfect in your mind. Think in terms of facilities and resources: Why isn’t our school like this? Resources are scarce meaning we don’t have everything we want to have in our school

4. What is Economics? • Economics is the study of how we make decisions in a world where resources are limited. • It is sometimes called the science of decision making. How do you choose what to buy when you only have a limited amount of money?

5. The fundamental economic problem is SCARCITY— we have unlimited wants and limited resources! Because of scarcity, we must make choices among alternatives. What is the Fundamental Economic Problem? Choose to Camp Out for an XBox 360, or Do Something Else

6. What is the Impact of Scarcity? • Why are diamonds expensive and water so cheap? • Scarce resource=high price • Abundant (not scarce) resource=low price

7. Producers and Consumers • Producers: make goods and services • Motivated by profit ($$$) • Consumers: purchase and use goods/services to satisfy their wants and needs • Make decisions based on what needs and wants they want to satisfy with their limited “scarce” resources.

8. Goods & Services Producers make goods and services to be consumed by the public • Goods: tangible products such as cars, CDs and clothes • Services: intangible things like telephone service, Internet or medical/legal services. Answer: When you watch TV there is a good and a service involved, what are they?

9. Needs vs. Wants • Needs are things we need for survival, such as food, clothing, and shelter. • Wants are things we would like to have. • Both needs and wants must be prioritized. What do you need the most? what do you want the most? vs.

10. Immediate vs. Delayed Gratification • If you choose to only consider the short term benefit of your purchase you are making a choice based on immediate gratification. • If you consider a longer term benefit of a purchase you are making a choice based on delayed gratification. QUESTION: If you buy a Hummer because you like it the most right now is this immediate or delayed gratification? If you buy a Honda accord because you know it will save you money on gas in the long run it is immediate or delayed gratification?

11. Productivity and Efficiency • Producers want to maximize their productivity and efficiency in order to make a larger profit! • So, you want to get the MOST out of every worker and resource you can. • We know a business is efficient when the cost of producing a resource is not more than the price. • Example: It cost me $1 to make each burger and I can sell it for $2! What is my profit on each burger?

12. 4 FACTORS OF PRODUCTION (Resources) • ALL FOUR FACTORS MUST BE PRESENT TO PRODUCE ANY GOOD/SERVICE! • Land • Labor • Capital • Entrepreneurship

13. Adds natural resources necessary for production these are renewable and nonrenewable resources Renewable Resources: trees, oxygen, water Non-Renewable Resources: gold, oil, coal, gas Land ANSWER: What is the difference between a renewable and nonrenewable resource?

14. Labor is the nation’s workforce or human resources. Sometimes it is called human capital. It includes the physical and mental talents of the people who help produce goods and services. Factors such as population growth, education, training and war affect the quantity and quality of labor. Labor (workers)

15. Capital, or capital goods, includes the tools, machinery, and buildings used to make other products. Financial Capital is the money that goes into a new business Consumer goods satisfy wants directly; capital goods do so indirectly by aiding production of consumer goods. Capital

16. Entrepreneurs • Entrepreneurs are individuals who start new businesses, introduce new products, create jobs and improve management techniques. • They are innovative and willing to take risks. • Brains of the economy: Entrepreneurs drive the economy because they use factors of production to produce new products & create jobs.

17. Opportunity Cost • the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen) • Ex. By going to school your opportunity cost is giving up sleep • Why is opportunity cost “opportunity lost”?

18. Incentives • A reward offered to try and persuade people to take certain economic actions • Ex. Buy one get one free • Ex. The toy in a Happy Meal

19. Economics Day 2

20. MARKET ECONOMY Production and exchange is regulated by competition between individuals and businesses (firms). • People have the right to own private property • Individuals and firms make decisions based on what is in their best interest. • Businesses produce goods for profits = Profit Motive • Everyone’s needs will be met b/c producers will make the most profit by making what consumers want. -- Producers supply what is demanded by consumers • Nicknames: Laissez-Faire “hands off,” Capitalism, Free Enterprise System, Invisible Hand • Examples:England, Germany, Japan • Competition answers the 3 economic questions (what, how, whom) • The government DOES NOT tell people what to produce or buy.

21. HOW IS AMERICA LIKE A MARKET ECONOMY? HOW IS AMERICA NOT LIKE A MARKET ECONOMY?

22. Parts of a Market Economy • Answer the following questions in your notes: • What is the motivator to work in a market economy? • Profit-Without profit there is no point of participation • What regulates a market economy? (not the government) • Competition • What is the main coordinator in a market economy? • Price

23. Trade • Market Economies based on Trade • Benefits both parties • Both parties trade excess material for a want or need • Ex. Buying a car: you trade your excess money for a car • You want a car • The dealer wants money • Everyone wins

24. Ownership • Without ownership trade is impossible • Why?

25. Circular flow model • It shows how our economy works • It shows how goods and services, money, and the factors of production are exchanged between households and firms in the economy.

26. The two main parts of the Circular Flow model are firms and households. FYI: Firm is another word for “business” FIRM Household fig

27. The circular flow of goods and incomes fig

28. The circular flow of goods and incomes Goods and services fig

29. The circular flow of goods and incomes Goods and services $ Consumer expenditure fig

30. The circular flow of goods and incomes Goods and services $ Consumer expenditure Households supply the factors of production (labor, etc) fig

31. The circular flow of goods and incomes Goods and services $ Consumer expenditure Income: Wages, salary, rent dividends, etc. $ Households supply the factors of production (labor, etc) fig

32. The circular flow of goods and incomes Goods and services $ Consumer expenditure Income: Wages, salary, rent dividends, etc. $ What’s the difference between wages and salary? Households supply the factors of production (labor, etc) fig

33. Business and Investment

34. What will happen to a company if they add too many factors of production (land, labor, capital, entrepreneurs)? What is this known as? EX: Subway, if subway had too many workers they would get in each other’s way and would not be able to produce as many sandwiches as they could if they had fewer workers

35. WARM-UP: • If you could start a business would you work on your own or with a partner? Why?

36. Sole Proprietorships • Business owned and operated by ONE person. Anyone can start one. • PROS: make all the profit & helped out by the government (Small Business Administration) • CONS: • unlimited liability—responsible for all debts. • Must raise all initial capital (human, physical and financial) • Limited Life: Business dies when owner does

37. Partnerships • A partnership is a business owned by 2 or more people. • PROS: • Share the burden of debt and capital. • Raise $$ by adding partners • No corporate income tax • CONS: • each partner has unlimited liability

38. Corporations • A business formed by filing a charter with the gov’t. • Stockholders who buy shares, or stocks, OWN the corporation. • Board of Directors is hired to run the business • PROS: • Raise money easily through selling stock to shareholders • Limited liability (only liable for your investment) • Unlimited life • CONS: • Gov’t regulation and might have to pay corporate tax • Owners have little say in management of corporation

39. Franchises • Businesses when individual people buy the rights to manage or run a large company’s store. • Example: McDonalds is a massive, multi-national company. But the local McDonalds in Scotland Neck is franchised to an individual owner. • PROS: ?? • CONS: ??

40. Words to Know for Businesses LIABILITY: What is risked if something goes wrong in a business.

41. Words to Know for Businesses STOCK: A partial ownership in a company.

42. Words to Know for Businesses DIVIDENDS: The money shareholders get when a company makes a profit.

43. Investment-Spend $$ to make More $$ What you can invest in and how you can invest your money INVESTMENT IS A WAY TO USE RESOURCES THAT COULD BE USED FOR IMMEDIATE BENEFIT FOR A GREATER BENEFIT AT A LATER TIME. Types of Investment Human Capital • the people—through pay, benefits, education and training to increase productivity! How would investing in human capital improve business?

44. Investment-Spend $$ to make More $$ What you can invest in and how you can invest your money Types of Investment • Physical Capital • Machinery, Technology, buildings, tools How would investing in physical capital improve business?

45. Investment-Spend $$ to make More $$ What you can invest in and how you can invest your money Types of Investment • Natural resources • Land (renewable & nonrenewable resources) How would investing in natural resources improve business?

46. Investment-Spend $$ to make More $$ What you can invest in and how you can invest your money Types of Investment • Financial Capital- MAKE MY $$$ GROW!!! • Stock How would investing in financial capital make someone more money?

47. Investment-Spend $$ to make More $$ What you can invest in and how you can invest your money Types of Investment • Venture Capital • Investment in a NEW business Why is investing in a new business RISKY?

48. OVERALL: Investment seeks to increase productivity by increasing inputs. • EX: I invest in machinery (input) and I get more cars (output)

49. Create a Business! • Name Business • State the major good or service you will be producing. • State the TYPE of Business (corporation, sole proprietorship, partnership)? • Identify your fixed costs • What investments will you make to get started? • Human Capital (how many workers, what types of jobs, skilled or unskilled workers?) • Financial Capital • Physical Capital • Create Advertisement for product or business card on the back. I AM COLLECTING THIS FOR A GRADE.

50. Exit Ticket • DID YOU GET IT??? Use the circular flow model to answer 1-5 1. Who provides firms with the factors of production? 2. Who purchases good & services? 3. Who creates goods & services? 4. What do households get in return for providing labor to firms? 5.What must a firm have in order to produce any good or service?