ECONOMICS

“The Basics of Economics”

Part I:The Basic Terms of

Economics

People in Economics In any society, there

are two major players in economics.

producer – maker and/or seller of goods and services

consumer – buyer and/or user of goods and services (everyone is a consumer)

Needs vs. Wants

needs – something humans require for survival (food, water, clothing, shelter)

wants – something desired, beyond what is required for survival (IPOD, cell phone)

Goods vs. Services

good – any manufactured product

ex. food, shoes, or TVs service – work done for

othersex. police, restaurants, doctors, beauticians, teachers

Scarcity

a shortage of goods or servicesIn any society, there is never enough

of everything to satisfy everyone’s wants and needs.

Unlimited wants and limited resources force choices.

Individuals, businesses, and governments all make choices due to scarcity.

Scarcity in Developed Nations

insufficient domestic petroleum

lack of raw materials

unfavorable balance of trade (more imports than exports)

Scarcity in Underdeveloped Nations

not enough farmland, water, and food lack of medical personnel, supplies, and

facilities lack of transportation for goods lack of building materials lack of employment lack of capital for investment lack of education

Allocation of Resources deciding who gets what resource

because people’s wants exceed the available resource resulting in scarcity

opportunity cost – something that is given up when something else is chosen

Economic Decisions

Producers in an economy must make basic economic decisions. What to produce? How to produce? For whom to produce?

Law of Supply and Demand supply – the amount of a good or service

available for sale in a market demand – the amount of a good or service

wanted in a market When supply is up and demand is down, prices go down. When supply is down and demand is up, prices go up.

Part IIResources: The

Factors of Production

Productive Resources availability of these

impacts the economic decisions

four major categories: natural human capital (goods and

human) entrepreneurship

Natural Resources

includes the sun, wind, water, oceans, rivers, gifts of nature, and mineral resources available in an area

Human Resources

laborpeople with

talent, knowledge, and skills

Capital Goods

Capital goods are the tools. These are things

that have been produced by past efforts of people that are used in production of goods and services.

Examples include: tools, equipment, buildings, machinery, and factories.

This is not money! Money is NOT a

resource; money is a means or medium of exchange.

Money is not worth anything by itself. Its value is for what we can exchange the money.

Human Capital

Investing in human capital involves training & education.

If you improve people skills, then they will be more productive.

People with more education will earn more. Teachers are investing in human capital.

Entrepreneurship ability and

willingness to see an opportunity to make a profit by making and selling a good or service - the willing- ness to risk capital

entrepreneur – person who risks capital to produce a good or service

investor – person who provides capital to an entrepreneur

middleman – a trader who buys goods from the producer and, in turn, sells the goods to another seller or sells directly to the consumer for profit (involves mark up in price to consumer at each exchange)

Opportunity Recognition

Entrepreneurs must recognize an unmet demand in the economy and try to meet it.

This involves risk taking. China – people grow rice in flooded fields, in

which they also raise fish to sell Truett Cathy - Chick-fil-a

Technology

Advancements in technology have led to higher productivity and a higher standard of living.

Examples of Technology

the wheel irrigation hydroelectric power automobiles telephones computers

Economics

W hat we doType of Job

W here we live

Persona l

Econom ic SystemHow to a llocate resources

Governement SystemSpend Tax dollars

Societa l

Decision Making

Scarcity

W ants > R esources

PERSONAL FINANCE

Financial planning for individuals. Generally, it involves analyzing their current financial position, predicting short-term and long-term needs, and recommending a financial strategy. The financial strategy involves setting a budget and planning for future needs and wants.

INCOME

The monetary payment received for goods or services, or from other sources, as rents or investments.

Income is money that literally “comes in” on a regular basis. For most people, income is something that comes from getting paid for doing work. Some people, however, are able to live off from their savings or investments. Income may also come from gifts or from selling something.

Spending

to pay out, disburse, or expend; dispose of (money, wealth, resources, etc.):

Money is needed for food, shelter, and clothing. Of course, people spend money on things they want, too.

Things that we want but do not need are called luxuries.

The best way to spend money wisely is to make a BUDGET, which is a plan for how much money will be spent on each type of item that a person must buy.

SAVINGS

1 Goal of BUDGETING is to save money. Saving allows people to plan to buy something

expensive in the future. (i.e., car, house, vacation, etc.)

Many different ways to save money. EX. Piggy bank, not necessarily safe.

Best way of saving money is to put it in a bank. By saving in a bank, your money can earn interest.

Interest is money that the bank pays you to use your money.

CREDIT When savings and income are not enough to pay for what a

person wants or needs, he or she can use credit. Credit is money that you borrow from a bank. When you let the bank use your money, that bank pays you

interest. When you use the bank’s money, you then must pay the

bank interest There are many different types of CREDIT, credit cards,

home loans, and car loans. Anytime money is owed, credit is extended. The key to personal finance is never to borrow more

than you can pay off in a reasonable amount of time.

Investment

Investment is the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

Investing is spending money in the hopes of earning more money than is spent.

EX. Collectable trading cards. A card that is bought for $1 may someday be worth $10. A return of $9- which is 900%.

INVESTMENT using money or capital in order to gain profitable returns, as

interest, income, or appreciation in value. Investing is spending money in the hope of earning

more money than is spent. EX. Collectable trading cards. A card that is bought for a $1

may someday be worth $10. A return of $9- which is 900% investment gain.

EX. Honus Wagoner card in 1909 cost less than 50¢, this year it sold for $2.35 million.