What is What is Economics Economics ? ? Social science that studies how people, acting individually Social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their and in groups, decide to use scarce resources to satisfy their needs. needs. Economics is about the Economics is about the “ordinary business of “ordinary business of life” life” Economist Alfred Marshall Economist Alfred Marshall CHAPTER 1: What is Economics? CHAPTER 1: What is Economics?
Transcript
What is EconomicsWhat is Economics??Social science that studies how people, acting individually and in groups, decide to use scarce Social science that studies how people, acting individually and in groups, decide to use scarce
resources to satisfy their needs. resources to satisfy their needs.
Economics is about the “ordinary Economics is about the “ordinary business of life” business of life” Economist Alfred MarshallEconomist Alfred Marshall
CHAPTER 1: What is Economics?CHAPTER 1: What is Economics?
Learning Objectives Unit 1Learning Objectives Unit 1 Describe the nature of human wants and how they are satisfied.Describe the nature of human wants and how they are satisfied. Identify and define the four factors of production.Identify and define the four factors of production. Define the meanings of scarcity and opportunity cost.Define the meanings of scarcity and opportunity cost. Explain the key ideas in the economic way of thinking.Explain the key ideas in the economic way of thinking. Explain what it means to think at the margin.Explain what it means to think at the margin. Describe the choices businesses face and a major goal of business.Describe the choices businesses face and a major goal of business. Identify the basic economic decisions facing all societies.Identify the basic economic decisions facing all societies. Describe the two branches of economics.Describe the two branches of economics. Explain why private property, specialization, voluntary exchange, the price system, market Explain why private property, specialization, voluntary exchange, the price system, market
competition, and entrepreneurship are considered the pillars of free enterprise.competition, and entrepreneurship are considered the pillars of free enterprise. Describe the nature of command, traditional, and mixed economic systems.Describe the nature of command, traditional, and mixed economic systems. Explain the three kinds of models economists use.Explain the three kinds of models economists use. Describe how the Circular Flow of Money, Resources, and Products explains the function of a Describe how the Circular Flow of Money, Resources, and Products explains the function of a
free market economy.free market economy. Define money and explain its three functions.Define money and explain its three functions. Identify the goals of the U.S. economic system.Identify the goals of the U.S. economic system.
3 basic economic questions:3 basic economic questions: What goods/services to produce?What goods/services to produce? How should goods/services be produced?How should goods/services be produced? For WHOM will goods/services be produced?For WHOM will goods/services be produced?
2 Primary Wants:2 Primary Wants: Physical wants: necessary to maintain a healthy, Physical wants: necessary to maintain a healthy,
safe lifesafe life food, clothing, housingfood, clothing, housing
Psychological wants: are not necessary to human Psychological wants: are not necessary to human existence existence
Special carSpecial car
Want-Satisfaction ChainWant-Satisfaction Chain
Human wantsHuman wants Land, labor, capitalLand, labor, capital Go into productionGo into production Resulting in goods and servicesResulting in goods and services Which go through distributionWhich go through distribution Goods made available for consumptionGoods made available for consumption Resulting in WANT-SATISFACTIONResulting in WANT-SATISFACTION
The Economic Way of ThinkingThe Economic Way of Thinking
1. People Choose
2. All Choices Involve Costs
3. People Try to Make Good Choices
4. People Respond to Incentives
5. People Gain When They Trade Voluntarily
6. Our Choices Are Future Oriented
7. Our Choices Are Influenced By the Choices of Others
Factors of ProductionFactors of Production
LandLand LaborLabor Capital: buildings, tools, and machines people Capital: buildings, tools, and machines people
create and use to produce final goods and create and use to produce final goods and servicesservices
Entrepreneurship Entrepreneurship
1. People Choose
Scarcity= Wants > Available resourcesScarcity= Wants > Available resources
ScarcityScarcity is the is the Economic ProblemEconomic Problem
2. All Choices Involve Costs
Opportunity cost: highest valued alternative Opportunity cost: highest valued alternative given up as a result of making a choicegiven up as a result of making a choice What you choose to spend $10 on.What you choose to spend $10 on.
Cost/Benefit thinkingCost/Benefit thinking Marginal Thinking: Marginal Thinking: how much time to spend on how much time to spend on
one activity and how much time to spend on one activity and how much time to spend on something else…thinking at the margin.something else…thinking at the margin.
Marginal: the extra or additional costs or Marginal: the extra or additional costs or benefits of a decisionbenefits of a decision
3. People try to make good choicesWe think “at the margin”We think “at the margin”
Incentives: positive reward that results from making a Incentives: positive reward that results from making a choice or behaving in a certain waychoice or behaving in a certain way Higher wages, lower prices, a good gradeHigher wages, lower prices, a good grade
Disincentives: a negative or withdrawn rewardDisincentives: a negative or withdrawn reward Fines or punishmentsFines or punishments
Economists try to predict how people respond to Economists try to predict how people respond to incentives and disincentivesincentives and disincentives
4. People Respond to Incentives
5. People Gain When They Trade Voluntarily
In a voluntary exchange between two people,In a voluntary exchange between two people, one person benefits more than anotherone person benefits more than another both people believe that they are both people believe that they are
benefitingbenefiting cash is always exchangedcash is always exchanged there is no benefit or cost to either personthere is no benefit or cost to either person
A high school student buys dinner at a A high school student buys dinner at a restaurant. The restaurant offers a special price restaurant. The restaurant offers a special price which offers 20 percent off the regular price of which offers 20 percent off the regular price of dinner. In this exchange,dinner. In this exchange,
the restaurant benefits, student does not the restaurant benefits, student does not the student benefits the restaurant does notthe student benefits the restaurant does not the student and the restaurant both believe they are the student and the restaurant both believe they are
benefitingbenefiting neither benefitneither benefit not enough information is given to know who not enough information is given to know who
benefitsbenefits
6. Our Choices Are Future Oriented
You cannot change a choice made in the past, You cannot change a choice made in the past, but can make choices about the future; based but can make choices about the future; based on what has happened in the past.on what has happened in the past. Example: Housing MarketExample: Housing Market
Examples: Actions of Congress, banksExamples: Actions of Congress, banks
7. Our Choices Are Influenced By the Choices of Others
Profit = Total Sales > Total CostsProfit = Total Sales > Total Costs Positive difference between total sales and total costsPositive difference between total sales and total costs Total sales MUST be greater than total costsTotal sales MUST be greater than total costs
MARKET ECONOMY:MARKET ECONOMY: Capitalism or free enterprise?Capitalism or free enterprise?
Capitalism: means of production are privately owned and operated for profitCapitalism: means of production are privately owned and operated for profit Free enterprise: the condition that allows people to freely make choices in their economic rolesFree enterprise: the condition that allows people to freely make choices in their economic roles
Economy that relies on voluntary trade as the primary Economy that relies on voluntary trade as the primary means of organizing and coordinating production.means of organizing and coordinating production.
Market: arrangement that allows buyers and Market: arrangement that allows buyers and sellers to make exchangessellers to make exchanges Consumers weigh the costs and benefits of choicesConsumers weigh the costs and benefits of choices
Macro/MicroEconomicsMacro/MicroEconomics
Macro: study of the economy as a wholeMacro: study of the economy as a whole BIG pictureBIG picture
How fast are prices rising?How fast are prices rising? Unemployment? Poverty?Unemployment? Poverty?
Micro: study of the individual consumers and Micro: study of the individual consumers and businessesbusinesses Individuals, families, and businesses.Individuals, families, and businesses.
What wages should we pay our employees?What wages should we pay our employees? Should we invest in new computers?Should we invest in new computers?
CHAPTER 2: Free Enterprise in CHAPTER 2: Free Enterprise in the U.S.the U.S.
Free enterprise: people in their economic roles Free enterprise: people in their economic roles are FREE to make CHOICESare FREE to make CHOICES
6 PILLARS OF FREE ENTERPRISE:6 PILLARS OF FREE ENTERPRISE: Private PropertyPrivate Property SpecializationSpecialization Voluntary ExchangeVoluntary Exchange The Price SystemThe Price System Market CompetitionMarket Competition EntrepreneurshipEntrepreneurship
Private Property:Private Property: Resources and products owned by individuals or businessesResources and products owned by individuals or businesses
Public Property:Public Property: Resources and products owned by governmentResources and products owned by government
SPECIALIZATION:SPECIALIZATION: Process in which businesses and people focus on Process in which businesses and people focus on
producing one or a few parts of an entire product\producing one or a few parts of an entire product\ Example: Gap vs. Apple, Starbucks: coffee, musicExample: Gap vs. Apple, Starbucks: coffee, music
Voluntary Exchange: Voluntary Exchange: People must buy and sell products to acquire all People must buy and sell products to acquire all
things they want from the economythings they want from the economy Time! Time! Example: pencil pg. 18Example: pencil pg. 18
The Price System:The Price System: Uses monetary prices as a message system to Uses monetary prices as a message system to
facilitate exchanges between buyers and sellersfacilitate exchanges between buyers and sellers When you buy something what is usually the first thing When you buy something what is usually the first thing
you look at?you look at? Branding?Branding? Prices = MAIN MESSENGER in a market economyPrices = MAIN MESSENGER in a market economy
Market Competition: competition among Market Competition: competition among businessesbusinesses 11stst form: competition in resource markets form: competition in resource markets
Land, labor, and capital that businesses use to produce Land, labor, and capital that businesses use to produce goods and servicesgoods and services
Getting a great education! Getting a great education! Compete more effectively against other workers (sellers of Compete more effectively against other workers (sellers of
labor) but businesses (buyers of labor) will compete more labor) but businesses (buyers of labor) will compete more intensely to employ you = get a better job and earn a higher intensely to employ you = get a better job and earn a higher wage!wage!
22ndnd form: competition in markets for products form: competition in markets for products All the goods and services consumers buy, from All the goods and services consumers buy, from
running shoes to haircutsrunning shoes to haircuts Rent, buying a house, concert ticketsRent, buying a house, concert tickets
Entrepreneurship:Entrepreneurship: Motivation that drives business leaders to compete Motivation that drives business leaders to compete
and react to changing conditions in the marketand react to changing conditions in the market
OVERALL: OVERALL: 6 pillars = essential to the success of a market 6 pillars = essential to the success of a market
economyeconomy T or F:T or F:
The government involvement in how the U.S. economy The government involvement in how the U.S. economy operates is limited.operates is limited.
Households: word economists use to describe Households: word economists use to describe living in the United States regardless of the living in the United States regardless of the type of house or apartmenttype of house or apartment 2 important roles:2 important roles:
Members of households = consumersMembers of households = consumers Resource owners: they own their laborResource owners: they own their labor
Land, capitalLand, capital
The circular flow model:The circular flow model: Illustrates how voluntary exchange worksIllustrates how voluntary exchange works Helps us understand the flow of resources into Helps us understand the flow of resources into
businesses businesses
Money: anything that is generally accepted as Money: anything that is generally accepted as a payment for goods and servicesa payment for goods and services Hamburgers instead of money?Hamburgers instead of money?
Barter: exchange of goods and services Barter: exchange of goods and services without using moneywithout using money Each person in the exchange wants what the other Each person in the exchange wants what the other
is offeringis offering Pudding cup.Pudding cup.
3 important functions of money:3 important functions of money: A medium of exchangeA medium of exchange A store of valueA store of value A measure of valueA measure of value
Medium of exchange:Medium of exchange: Instead of exchanging your labor for burgers, you can Instead of exchanging your labor for burgers, you can
trade it for money.trade it for money. When people AGREE on the value of money, it become When people AGREE on the value of money, it become
a medium, a means of exchange.a medium, a means of exchange. Store of value: SAVE Store of value: SAVE
Means that you can hold on to money to use it sometime Means that you can hold on to money to use it sometime in the future.in the future.
Does not become old or stale like a burger.Does not become old or stale like a burger. Measure of value:Measure of value:
IIn an exchange, each product or resource has a single money pricen an exchange, each product or resource has a single money price People can compare money prices to find the best value for what they are People can compare money prices to find the best value for what they are
buying or sellingbuying or selling Compare values of good, services, and resourcesCompare values of good, services, and resources
7 goals of the U.S. Economic System:7 goals of the U.S. Economic System:
Full employment: Full employment: almost all people in the labor almost all people in the labor force are able to find workforce are able to find work
Economic growth: Economic growth: increase in output of goods increase in output of goods and servicesand services
Price stability: Price stability: prices of goods, services, and prices of goods, services, and resources do not fluctuate significantly either up or resources do not fluctuate significantly either up or down, in short periods of time.down, in short periods of time.
Economic freedom: Economic freedom: in choice of employment, in choice of employment, buying, selling, use of our time, and other buying, selling, use of our time, and other decisions related to our economy.decisions related to our economy.
Economic security: Economic security: means that the basic needs of means that the basic needs of every person should be met. This INCLUDES every person should be met. This INCLUDES people who are unable to pay for their own way people who are unable to pay for their own way for whatever reason. for whatever reason.
Economic equity: Economic equity: fairness and impartiality = offer fairness and impartiality = offer ALL citizens equal economic opportunitiesALL citizens equal economic opportunities
Economic efficiency: Economic efficiency: getting the maximum output getting the maximum output from the resources used to produce goods and from the resources used to produce goods and services.services.
Refers to the entire economy’s ability to get the most Refers to the entire economy’s ability to get the most out of its limited resources.out of its limited resources.
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