Economics

8.4.1

The Fundamental Economic Problem

There is not enough to go around…resources are limited.

Economics- the study of how we make decisions in a world where resources are limited.

Scarcity

Needs- things required for survivalExamples?

Wants- things we would like to have to make life more comfortable & enjoyableExamples?

Scarcity- when we don’t have enough resources to have all of the things we would like to have.

Making Economic Decisions

Because of scarcity, we have to make some decisions about how to use our resources.

How do you make a decision?

Trade-offs

Trade-off- the alternative you face if you decide to do one thing rather than another.Examples:

taking more time to study means less time to talk to friends, and spending more time talking to friends means less time to study.

If the government spends more money on education it means less if available for medical research, etc.

Opportunity Cost

What is the cost of going to college?Not just books, tuition, etc. Also the full-time income you are not earning

because you are studying & going to class

Opportunity cost- the cost of the next best use of your time or money when you choose to do one thing over another.can be more than just money (time,

inconvenience, possible discomforts)

Your role as a consumer.

Consumer- a person who buys or uses a product.

Choices for consumersPay with cashCredit- get the product now, pay later (credit card,

charge account, water, gas, electricity) Use a check or debit cards (money comes directly

from your bank account)

Budget

Budget- a plan for making and spending money

Balanced budget- income is equal or greater than spending.

Video

Saving

Reasons for savingMajor purchases (home, car, etc.)EmergenciesIt helps the economy by providing money for

others to invest and spend.It allows businesses to expand by borrowing

the money you’re saving. You can earn interest- payment for loaning

someone your money.

Rule of 72

This formula can help you determine how many years it will take for your money to double.

72 = years to double investment

interest rate

72 = interest rate needed

years to double

Demand Demand- desire,

willingness and ability to buy a good or service let’s make a

demand schedule

Cost of the pack of gum

# you are willing to buy

$.50

$1.00

$1.50

$2.00

$2.50

Demand The demand schedule can be made

into a demand curve.

$ #

$50 100

$40 150

$30 180

$20 230

$10 300

$5 400

Video Games

50 100 150 200 250 300 350 400

Quantity

$50

$40

$30

$20

$10

$0

Price

Demand Curve

Law of Demand

Law of Demand- the quantity demanded and price move in opposite directions

If the price is high,…? If the price is low,…?

Factors affecting demand

1. Changes in the number of consumers

2. Changes in consumers’ income3. Changes in consumers’ tastes4. Changes in consumers’ expectations5. Changes in substitutes (pen/pencil, butter/margarine,

coffee/tea)

6. Changes in complements (computers/software,

cars/gasoline)

Supply

The amount of a good or service producers are willing to sell. Let’s make a supply

schedule

Cost of Pizza by the slice

# you are willing to sell

$1

$2

$3

$4

$5

Supply The supply schedule can be made into a

supply curve.

$ #

$50 275

$40 225

$30 180

$20 105

$10 55

$5 30

Video Games

0 50 100 150 200 250 300

Quantity

$50

$40

$30

$20

$10

$0

Price

Supply Curve

Law of Supply

Law of Supply- Suppliers will normally offer more for sale at higher prices and less at lower prices.

If the price is high…. If the price is low…

Factors affecting supply

1. Changes in cost of resources.

2. Changes in productivity. (worker efficiency) 3. Changes in technology. (can cut costs)

4. Changes in government policies, taxes & subsidies

5. Expectations of producers. ( predicting consumer behavior)

Combining Supply & Demand Combining Supply & Demand

The supply & demand curves can be The supply & demand curves can be combined to find the best selling price. combined to find the best selling price.

$$ # # demandeddemanded

# # suppliedsupplied

$50$50 100100 275275

$40$40 150150 225225

$30$30 180180 180180

$20$20 230230 105105

$10$10 300300 5555

$5$5 400400 3030

Video Games

0 100 200 300 400 Quantity

$50

$40

$30

$20

$10

$0

Price

Equilibrium price-Equilibrium price- the price at which the price at which supply & demand are equalsupply & demand are equal

What is the What is the equilibrium equilibrium price for video price for video games? games?

0 100 200 300 400 Quantity

$50

$40

$30

$20

$10

$0

Price

SurplusSurplus- the amount of supply for which - the amount of supply for which there is no demand; extra (when supply is there is no demand; extra (when supply is

greater than demand)greater than demand)

At what At what price/s is price/s is there a there a surplus of surplus of video video games?games?

0 100 200 300 400 Quantity

$50

$40

$30

$20

$10

$0

Price

ShortageShortage- when supply cannot meet the - when supply cannot meet the demand; not enough (when supply is less demand; not enough (when supply is less

than demand) than demand)

At which At which price/s is there price/s is there a shortage of a shortage of video games?video games?

0 100 200 300 400 Quantity

$50

$40

$30

$20

$10

$0

Price

WHAT CAN WE LEARN FROM TOYS? HULA HOOPS & SILLY BANDZ

INTRO TO THE HULA HOOP

In 1958, Wham-O, Inc. began marketing the Hula Hoop in the United States. Sales of the Hula Hoops sky-rocketed during the year, in the first months over 25 million were sold, within the year over 100 million. Similarly today, Silly Bandz has taken off in sales since the summer of 2008. According to Robert J. Croak, founder of Brainchild Product the producer of Silly Bandz, from a small warehouse in Toledo, Ohio has gone from shipping 20 to 1,500 boxes a day.

In 1994, the film The Hudsucker Proxy portrays a fictionalized account of the demand for Hula Hoops as they were introduced into the market.  

DISCUSSION QUESTIONS

Why does a business owner lower the price of products that are not selling quickly?

When would a business owner have the incentive to raise prices?

What does a higher price than before for a good or service communicate to consumers about the demand for that product?

INTRO TO SILLY BANDZ

Today, Brainchild Products, the makers of Silly Bandz are experiencing a large increase in demand for their products similar to that of Hula Hoops in 1958. The rise in demand for Silly Bandz; however, has not as yet been accompanied by a rise in the price for the product. Instead producers of Silly Bandz have responded by largely increasing their production of Silly Bandz.

DISCUSSION QUESTIONS

What information is being communicated to the business owner by the $5 price of Silly Bandz?

What can the business owner do to ensure that the Silly Bandz are allocated to those consumers, which value them the most?