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Economics What is economics and what is an economy?
Economics
What is economics and what is an economy?
Vocabulary
• Economics-the study of how people choose to use their limited resources to satisfy their unlimited wants.
Vocabulary
• Economics - the study of how people choose to use their limited resources to satisfy their unlimited wants.
• Economy - a system used to manage limited resources for the production, distribution, and consumption of goods and services.
What is a resource?
• A resource is anything used to produce an economic good or service, they are limited, they only exist in limited amounts.
What is a resource?
• A resource is anything used to produce an economic good or service, they are limited, they only exist in limited amounts.
• Think of some resources-write them down.
Economics is divided into two fields of study
• Microeconomics-looks at economic decision making by individuals, households, and businesses.
Economics is divided into two fields of study
• Microeconomics-looks at economic decision making by individuals, households, and businesses.
• Macroeconomics-focuses on the workings of an economy as a whole.
Economics is divided into two fields of study
• Microeconomics-looks at economic decision making by individuals, households, and businesses.
Economics is divided into two fields of study
• Microeconomics-looks at economic decision making by individuals, households, and businesses.
• Macroeconomics-focuses on the workings of an economy as a whole.
Economics is divided into two fields of study
• Microeconomics-looks at economic decision making by individuals, households, and businesses.
• Macroeconomics-focuses on the workings of an economy as a whole.
• Think of examples of micro and macro economics.
Other Aspects of EconomicsEconomics also involves studying how people choose to use their resources. When people cannot have everything they want, they must make choices. We will always be forced to make choices as to what we want most.
Tradeoff
• Whenever you choose one thing over another, you are making a tradeoff. You are giving up one thing to get another that you want even more. Limited resources force people to make choices and face tradeoffs when they choose. Every choice involves tradeoffs.
tradeoffsEvery choice entails cost (something lost) and benefits (something gained). A cost-benefit analysis involves identifying these cost and benefits and weighing them against each other. The best choice is that in which the benefits outweigh the cost.
Cost and Benefits
• The cost of something are what you spend in money, time, effort, or other sacrifices to get it, the benefits are what you gain from something in terms of money, time, experience, or other improvements in your situration.
Cost and Benefits II
• People choose something when the benefits of doing so are greater than the cost.
Cost and Benefits II
• People choose something when the benefits of doing so are greater than the cost.
• Read the handout pages 16 and 17 and complete the chart.
Sleeping One Hour Later
Costs• No time for a good
breakfast• No long morning shower• No study time for tests
before school• Less time to dress• More likely to be late for
class
Sleeping One Hour Later
Costs• No time for a good
breakfast• No long morning shower• No study time for tests
before school• Less time to dress• More likely to be late for
class
Benefits• Pleasure of sleeping longer• Lower water bill• May do better if well rested• Less time to worry about
what to wear• Less likely to fall asleep in
class
Limited Resources/Unlimited WantsCost and benefits
Goods and Services
• Goods and services are scarce. They are scarce because the resources needed to produce them-land, labor, materials, and machines-are scarce.
Goods and Services
• Goods and services are scarce. They are scarce because the resources needed to produce them-land, labor, materials, and machines-are scarce.
• A shortage is a lack of something that is desired, a condition that occurs when there is less of a good or service available then people want at the current price.
Goods and Services II
• A shortage ends once production is resumed or new sources of supply are found, scarcity is forever. No matter how well people use their limited resources, there will never be enough of everything to satisfy all of their wants.
Goods and Services II
• A shortage ends once production is resumed or new sources of supply are found, scarcity is forever. No matter how well people use their limited resources, there will never be enough of everything to satisfy all of their wants.
• Every choice involves tradeoffs among alternatives, people try to maximize satisfaction, they hope to gain by choosing one alternative over another. The opportunity cost of any decision is the value of the next-best alternative. (What you must give up to get what you most want)
Three Types of Economic Systems
• Who decides what in different economic systems? There are three types; traditional economy, command economy, and market economy.
Three Types of Economic Systems II
• Traditional Economy- decisions are dictated by custom and the ways of ancestors.
Three Types of Economic Systems II
• Traditional Economy- decisions are dictated by custom and the ways of ancestors.
• Command Economy- a powerful ruler or government makes decisions.
Three Types of Economic Systems II
• Traditional Economy- decisions are dictated by custom and the ways of ancestors.
• Command Economy- a powerful ruler or government makes decisions.
• Market Economy- decisions are made by the interactions of individual producers and consumers.
Fourth Kind of Economic System
• A fourth kind is mixed economy: both the government and individuals play important roles with regard to production and consumption. (Most countries today have this economy).
The United StatesThe United State is a mixed economy
Seven Key Characteristics of the American Economic System
• Economic freedom to buy and sell what we want and work where we want
Seven Key Characteristics of the American Economic System
• Economic freedom to buy and sell what we want and work where we want
• Competition among firms, which try to attract customers with new and better products
Seven Key Characteristics of the American Economic System
• Economic freedom to buy and sell what we want and work where we want
• Competition among firms, which try to attract customers with new and better products
• Equal opportunity to make the best use of talents, abilities, and education
Seven Key Characteristics of the American Economic System
• Economic freedom to buy and sell what we want and work where we want
• Competition among firms, which try to attract customers with new and better products
• Equal opportunity to make the best use of talents, abilities, and education
• Property rights that allow us to buy, own, and sell goods and intellectual property
Seven Characteristics II
• Binding contracts which give us confidence that others will abide by their agreement
Seven Characteristics II
• Binding contracts which give us confidence that others will abide by their agreement
• The profit motive, which provides an incentive to work and start new businesses
Seven Characteristics II
• Binding contracts which give us confidence that others will abide by their agreement
• The profit motive, which provides an incentive to work and start new businesses
• Limited government that regulates without controlling individuals, firms, or the market
Seven Characteristics II
• Binding contracts which give us confidence that others will abide by their agreement
• The profit motive, which provides an incentive to work and start new businesses
• Limited government that regulates without controlling individuals, firms, or the market
• (Look for ways that these 7 characteristics are present now and throughout U.S. history)
Who Drives the World Economy?Look at this image, what does it make you think about? Why?
