1. Introduction-to-Economics-Powerpoint-Unit-I-ppt.ppt
Download as PPT, PDF0 likes50 views
The document provides an overview of economics, emphasizing the study of how individuals and societies make decisions regarding scarce resources to fulfill their wants and needs. It covers key concepts such as microeconomics, macroeconomics, opportunity cost, and factors of production, as well as the importance of making choices and the implications of scarcity. Additionally, it outlines the steps for establishing a business, including identifying the target audience, analyzing competition, and setting appropriate pricing strategies.
1. Introduction-to-Economics-Powerpoint-Unit-I-ppt.ppt
- 1. List (20) things you have List (20) things you have purchased in the last month purchased in the last month
- 2. INTRODUCTION TO INTRODUCTION TO ECONOMICS ECONOMICS Choices, Choices, Choices, . . . Choices, Choices, Choices, . . .
- 3. WHAT IS ECONOMICS? WHAT IS ECONOMICS? Economics – the study Economics – the study of how individuals and of how individuals and societies make societies make decisions about ways decisions about ways to use scarce to use scarce resources to fulfill resources to fulfill wants and needs. wants and needs.
- 4. The Study of Economics The Study of Economics Macroeconomics Macroeconomics – The big picture: growth, The big picture: growth, employment, etc. employment, etc. – Choices made by large Choices made by large groups (like countries) groups (like countries) Microeconomics Microeconomics – How do individuals make How do individuals make economic decisions economic decisions
- 5. ECONOMICS: 5 Economic ECONOMICS: 5 Economic Questions Questions Society (we) must figure out Society (we) must figure out WHAT to produce (make) WHAT to produce (make) HOW MUCH to produce HOW MUCH to produce (quantity) (quantity) HOW to Produce it HOW to Produce it (manufacture) (manufacture) FOR WHOM to Produce FOR WHOM to Produce (who gets what) (who gets what) WHO gets to make these WHO gets to make these decisions? decisions?
- 6. What are resources? What are resources? Definition: The things used to make other Definition: The things used to make other goods goods
- 7. BUT, there’s a BUT, there’s a Fundamental Problem: Fundamental Problem: SCARCITY: unlimited wants and SCARCITY: unlimited wants and needs but limited resources needs but limited resources
- 8. List five (5) of your favorite items (goods) (boots, phone, etc. Where did you buy these items? Where were they made?
- 9. Choices, Choices Choices, Choices Because ALL resources, Because ALL resources, goods, and services are goods, and services are limited – WE MUST MAKE limited – WE MUST MAKE CHOICES!!!! CHOICES!!!!
- 10. Why Choices? Why Choices? We make choices about how we spend our We make choices about how we spend our money, time, and energy so we can fulfill money, time, and energy so we can fulfill our NEEDS and WANTS. our NEEDS and WANTS. What are NEEDS and WANTS? What are NEEDS and WANTS?
- 11. Wants and Needs, Wants and Needs, Needs and Wants Needs and Wants NEEDS – “stuff” we must have to survive, NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing generally: food, shelter, clothing WANTS – “stuff” we would really like to WANTS – “stuff” we would really like to have (Fancy food, shelter, clothing, big have (Fancy food, shelter, clothing, big screen TVs, jewelry, conveniences . . . screen TVs, jewelry, conveniences . . . Also known as LUXURIES Also known as LUXURIES
- 12. VS.
- 13. TRADE-OFFS TRADE-OFFS You can’t have it all (SCARCITY – You can’t have it all (SCARCITY – remember) so you have to remember) so you have to choose how to spend your choose how to spend your money, time, and energy. These money, time, and energy. These decisions involve picking one decisions involve picking one thing over all the other thing over all the other possibilities – a TRADE-OFF possibilities – a TRADE-OFF
- 14. Trade-Offs, cont. Trade-Offs, cont. What COULD you have done instead of come What COULD you have done instead of come to school today? to school today?
- 15. The result of your Trade-Off is the The result of your Trade-Off is the OPPORTUNITY COST = OPPORTUNITY COST = The Value of the Next Best Choice (Ex: Sleeping is the opportunity cost of studying for a test) (Ex: Sleeping is the opportunity cost of studying for a test)
- 16. “ “There is no such thing as a free There is no such thing as a free lunch.” lunch.” Imagine that the friendly Imagine that the friendly neighborhood pizza restaurant set neighborhood pizza restaurant set up a table full of pizza boxes outside up a table full of pizza boxes outside your school about lunchtime and put your school about lunchtime and put up a sign that said Pizza and soda up a sign that said Pizza and soda $0.00. Why wouldn’t that be a free $0.00. Why wouldn’t that be a free lunch? It didn’t cost you anything lunch? It didn’t cost you anything right? Well, it may not have cost you right? Well, it may not have cost you in terms of money, but any situation in terms of money, but any situation which forces you to make a choice which forces you to make a choice results in an opportunity cost. results in an opportunity cost. Or consider this: you may spend several hours this evening tweeting and texting friends at no additional monetary cost to your phone plan. You may think of this as free, but there is a cost. What opportunity did you give up? In his famous quote, Milton Friedman was reminding us of the lessons we have learned today: because of scarcity we must choose and choice means that there is an opportunity cost
- 17. Opportunity Costs Opportunity Costs This is really IMPORTANT – when you choose to do This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. measured by the value of the NEXT BEST CHOICE. – This can be in time, energy, or even MONEY This can be in time, energy, or even MONEY If I buy a pizza… Then I can’t afford the movies… Q: What is the opportunity cost of buying pizza?
- 18. Wrap Up Wrap Up
- 19. WHAT IS ECONOMICS? WHAT IS ECONOMICS? Economics – the study of how Economics – the study of how individuals and societies make individuals and societies make decisions about ways to use decisions about ways to use scarce resources to fulfill scarce resources to fulfill wants and needs wants and needs
- 20. What is Macroeconomics? What is Macroeconomics? Macroeconomics Macroeconomics The big picture: growth, employment, etc. The big picture: growth, employment, etc. Choices made by large groups (like Choices made by large groups (like countries) countries)
- 21. What is Microeconomics? What is Microeconomics? How individuals make How individuals make economic decisions economic decisions
- 22. What is the difference between What is the difference between a need and a want? a need and a want? Needs: items for survival, water, food, Needs: items for survival, water, food, shelter shelter Wants: luxuries, fancy cars, vacations Wants: luxuries, fancy cars, vacations
- 23. Things used to make other Things used to make other goods. goods. What are resources? What are resources? What is Scarcity: unlimited wants and needs but limited resources
- 24. What is Opportunity Cost? What is Opportunity Cost? The costs of the choice NOT The costs of the choice NOT taken taken when you choose to do ONE when you choose to do ONE thing, its value (how much it is thing, its value (how much it is worth) is measured by the value of worth) is measured by the value of the NEXT BEST CHOICE. This the NEXT BEST CHOICE. This can be in time, energy, or even can be in time, energy, or even MONEY MONEY
- 25. What are the 5 Economic Questions What are the 5 Economic Questions Society (we) must figure out Society (we) must figure out WHAT to produce (make) WHAT to produce (make) HOW MUCH to produce (quantity) HOW MUCH to produce (quantity) HOW to Produce it (manufacture) HOW to Produce it (manufacture) FOR WHOM to Produce (who gets what) FOR WHOM to Produce (who gets what) WHO gets to make these decisions? WHO gets to make these decisions?
- 27. Production Production So how do we get all So how do we get all this “stuff” that we this “stuff” that we have to decide about? have to decide about? Decisions, decisions Decisions, decisions … …
- 28. PRODUCTION, cont. PRODUCTION, cont. Production is Production is how much stuff how much stuff an individual, an individual, business, business, country, even country, even the WORLD the WORLD makes. makes. STUFF – Goods and STUFF – Goods and Services. Services. Goods – tangible (you can Goods – tangible (you can touch it) products we can buy touch it) products we can buy Services – work that is Services – work that is performed for others performed for others Capital Goods – goods used Capital Goods – goods used to provide services or to make to provide services or to make money money
- 29. Capital Goods and Consumer Capital Goods and Consumer Goods Goods Capital Goods: are Capital Goods: are used to make other used to make other goods goods Consumer Goods: Consumer Goods: final products that are final products that are purchased directly by purchased directly by the consumer the consumer
- 30. Factors of Production Factors of Production So, what do we need to make all of this Stuff? So, what do we need to make all of this Stuff?
- 31. 4 Factors of Production 4 Factors of Production LAND – Natural Resources LAND – Natural Resources – Water, natural gas, oil, trees (all the stuff we find on, Water, natural gas, oil, trees (all the stuff we find on, in, and under the land) in, and under the land) LABOR – Physical and Intellectual LABOR – Physical and Intellectual – Labor is manpower Labor is manpower CAPITAL - Tools, Machinery, Factories CAPITAL - Tools, Machinery, Factories – The things we use to make things The things we use to make things – Human capital is brainpower, ideas, innovation Human capital is brainpower, ideas, innovation ENTREPRENEURSHIP – Investment $$$ ENTREPRENEURSHIP – Investment $$$ – Investing time, natural resources, labor and capital Investing time, natural resources, labor and capital are all risks associated with production are all risks associated with production
- 32. Which Factor of Production? Which Factor of Production?
- 33. Which Factor of Production? Which Factor of Production?
- 34. Which Factor of Production? Which Factor of Production?
- 35. Which Factor of production? Which Factor of production?
- 36. THREE parts to the Production THREE parts to the Production Process Process Factors of Production – what we need to make Factors of Production – what we need to make goods and services goods and services Producer – company that makes goods and/or Producer – company that makes goods and/or delivers services delivers services Consumer – people who buy goods and services Consumer – people who buy goods and services (formerly known as “stuff”) (formerly known as “stuff”) Which Came First?
- 39. Business plan development Business plan development Choose a Creative Name for Your BusinessThink Choose a Creative Name for Your BusinessThink of a memorable name that relates to what you of a memorable name that relates to what you offer. This name should communicate the offer. This name should communicate the essence of your product or service. essence of your product or service. Define an Innovative and Clear Product or Define an Innovative and Clear Product or ServiceThe product or service should be ServiceThe product or service should be something new, improved, or unique in its something new, improved, or unique in its concept.Example guiding questions: What concept.Example guiding questions: What problem does this product or service solve? What problem does this product or service solve? What makes it innovative? makes it innovative?
- 40. Identify Your Target AudienceClearly define who Identify Your Target AudienceClearly define who your ideal customers are: age, location, interests, your ideal customers are: age, location, interests, and specific needs.Example guiding questions: and specific needs.Example guiding questions: Why is your product or service ideal for this group? Why is your product or service ideal for this group? What are their main needs? What are their main needs? Analyze the Competition Research who is offering Analyze the Competition Research who is offering similar products or services. The idea is to identify similar products or services. The idea is to identify what makes your business stand out.Example what makes your business stand out.Example guiding questions: Who are your main competitors? guiding questions: Who are your main competitors? How can you stand out in the market? How can you stand out in the market?
- 41. Identify the Resources Needed to Launch the Identify the Resources Needed to Launch the BusinessConsider the financial, material, and equipment BusinessConsider the financial, material, and equipment resources needed to get started.Example guiding resources needed to get started.Example guiding questions: How much money will you need to start? questions: How much money will you need to start? What materials and equipment are essential?Describe What materials and equipment are essential?Describe Your Promotion and Marketing StrategyThink about how Your Promotion and Marketing StrategyThink about how you’ll attract customers and what marketing channels you’ll attract customers and what marketing channels you’ll use (social media, ads, events, etc.).Example you’ll use (social media, ads, events, etc.).Example guiding questions: What’s the best way to reach your guiding questions: What’s the best way to reach your target audience? What message do you want to target audience? What message do you want to communicate in your promotions? communicate in your promotions?
- 42. Set an Appropriate Price for Your Product Set an Appropriate Price for Your Product or ServiceSet the price by considering or ServiceSet the price by considering costs, perceived value, and competitor costs, perceived value, and competitor pricing.Example guiding questions: How pricing.Example guiding questions: How did you determine the price? Is it did you determine the price? Is it accessible for your target audience? accessible for your target audience?
- 43. 7. Set an Appropriate Price for Your 7. Set an Appropriate Price for Your Product or ServicePricing is one of the Product or ServicePricing is one of the most important decisions in any business most important decisions in any business plan, as it directly affects customer interest plan, as it directly affects customer interest and profitability. To set a fair and attractive and profitability. To set a fair and attractive price, consider three key factors: your price, consider three key factors: your production costs, the prices offered by production costs, the prices offered by competitors, and the perceived value of competitors, and the perceived value of your product or service. your product or service.
- 44. . Start by calculating all the expenses involved in . Start by calculating all the expenses involved in producing your product or delivering your service, producing your product or delivering your service, including materials, labor, and operational costs. including materials, labor, and operational costs. Then, research the market to understand what Then, research the market to understand what competitors are charging for similar offerings. Finally, competitors are charging for similar offerings. Finally, think about how much your target customers are think about how much your target customers are willing to pay based on the benefits and quality your willing to pay based on the benefits and quality your product or service provides. Remember, the right product or service provides. Remember, the right price is not just about covering costs; it should also price is not just about covering costs; it should also position your business competitively and reflect the position your business competitively and reflect the value that customers will receive. value that customers will receive.
- 45. CHANGES IN PRODUCTION CHANGES IN PRODUCTION Specialization Specialization – – dividing up production dividing up production so that Goods are so that Goods are produced efficiently produced efficiently Nike makes shoes, not hamburgers Hardee’s makes hamburgers, not shoes!!
- 47. CHANGES IN PRODUCTION CHANGES IN PRODUCTION Division of Labor Division of Labor – – different people different people perform different jobs perform different jobs to achieve greater to achieve greater efficiency (assembly efficiency (assembly line). line). You do your job, and I will do my Job and we will be more EFFICIENT
- 49. CHANGES IN PRODUCTION CHANGES IN PRODUCTION Consumption Consumption – how – how much we buy much we buy (Consumer (Consumer Sovereignty) Sovereignty) The DELL store is empty because…. Everyone is at the APPLE STORE!!!
- 50. Why? Why?
- 51. CHANGES IN PRODUCTION CHANGES IN PRODUCTION If we INCREASE land, labor, capital we If we INCREASE land, labor, capital we INCREASE production INCREASE production – Many entrepreneurs invest profit back into production Many entrepreneurs invest profit back into production If we DECREASE land, labor, capital we If we DECREASE land, labor, capital we DECREASE production DECREASE production BUT WHY would we ever DECREASE BUT WHY would we ever DECREASE production? production?
- 52. The Circular Flow Model The Circular Flow Model • Economic model illustrating the flow of goods and services though the economy. • In the model, producers are termed as "firms" while consumers are referred to as "households." • Firms supply goods and services Households consume these goods and services. • Factors of production (land, labor, capital) are supplied by the household to firms and the firms convert these into finished products for household consumption
- 55. Part 2: Costs and Revenues Part 2: Costs and Revenues
- 56. Costs and Revenues Costs and Revenues Cost – the total Cost – the total amount of money it amount of money it takes to produce an takes to produce an item (to pay for ALL item (to pay for ALL Factors of Factors of Production). Production).
- 57. Costs and Revenues Costs and Revenues Revenues – the total Revenues – the total amount of $ a amount of $ a company or the company or the government takes in. government takes in.
- 58. Costs and Revenues Costs and Revenues Fixed Costs Fixed Costs – the – the amount of money a amount of money a business MUST pay each business MUST pay each month or year (like rent month or year (like rent and Capital expenses). and Capital expenses).
- 59. Costs and Revenues Costs and Revenues Variable Costs Variable Costs – the – the amount of money a amount of money a business pays that business pays that changes over time (Labor changes over time (Labor and Raw Materials). and Raw Materials).
- 60. Costs and Revenues Costs and Revenues Total Costs Total Costs = Fixed + = Fixed + Variable Costs. Variable Costs.
- 61. Costs and Revenues - Chart Costs and Revenues - Chart Marginal Costs Marginal Costs – the – the additional Cost of the additional Cost of the NEXT UNIT produced. NEXT UNIT produced. Margin=Extra Space
- 62. Costs and Revenues Costs and Revenues Profit Profit – the difference – the difference between Total Costs between Total Costs and Revenues. This and Revenues. This is WHY you’re in is WHY you’re in BUSINESS (Profit BUSINESS (Profit Motive!) Motive!) – Profit=Revenues-Total cost Profit=Revenues-Total cost – Profit Motive=why you are Profit Motive=why you are in business---to make in business---to make MONEY MONEY (principles of Capitalism) (principles of Capitalism)
- 63. Costs and Revenues Costs and Revenues Cost Benefit Analysis Cost Benefit Analysis – weighing the – weighing the Marginal Costs vs. the Marginal Costs vs. the Marginal Benefits of Marginal Benefits of producing an item or producing an item or making any economic making any economic decision. If the Benefit decision. If the Benefit is GREATER than the is GREATER than the Cost, then business Cost, then business does it. does it. Marginal Benefits Marginal Costs
- 64. Cost-Benefit Analysis Cost-Benefit Analysis Immediate or short term satisfaction can Immediate or short term satisfaction can lead to missing the long-term benefits.#7 lead to missing the long-term benefits.#7 For Example For Example Immediate spending on cheap stuff Immediate spending on cheap stuff instead of long-term savings will lead to instead of long-term savings will lead to lower economic prosperity. lower economic prosperity.
- 65. Wrap Up Wrap Up
- 66. Part 3: Comparative Part 3: Comparative Economics Economics
- 67. Traditional Economies Traditional Economies Def: Economic Def: Economic Questions answered by Questions answered by custom custom Predominately Predominately Agricultural Agricultural Developing or “3 Developing or “3rd rd World” World” Trade and barter Trade and barter oriented oriented Low GDP & PCI (per Low GDP & PCI (per capita income = avg. capita income = avg. inc.) inc.)
- 68. Command Economies Command Economies Def: Economic Def: Economic questions answered by questions answered by the government the government Very little economic Very little economic choice choice No private ownership No private ownership Communism Communism Old Soviet Union, old Old Soviet Union, old Communist China, Communist China, Cuba and North Korea Cuba and North Korea
- 69. Karl Marx Karl Marx 19 19th th century German century German economist economist Author of “Communist Author of “Communist Manifesto” and “ Das Manifesto” and “ Das Kapital” Kapital” – Government should Government should control economy and control economy and distribute goods and distribute goods and services to the people services to the people Founder of Founder of revolutionary revolutionary socialism and socialism and communism communism
- 70. Communism Falls Communism Falls Market reforms in China in the Market reforms in China in the mid 1970s. mid 1970s. Fall of the Berlin Wall in 1989. Fall of the Berlin Wall in 1989. Collapse of the Soviet Union Collapse of the Soviet Union 1991. 1991. Free Market Capitalism (w/ Free Market Capitalism (w/ some Mixed Economies) the some Mixed Economies) the only show in town. only show in town.
- 71. Free Market (Capitalist) Economies Free Market (Capitalist) Economies Economic questions Economic questions answered by answered by producers and producers and consumers consumers Limited government Limited government involvement involvement Private property rights Private property rights Wide variety of Wide variety of choices and products choices and products U.S., Japan U.S., Japan
- 72. Adam Smith Adam Smith 18 18th th century Scottish century Scottish economist economist Published “The Wealth of Published “The Wealth of Nations” in 1776 Nations” in 1776 Explained the workings of Explained the workings of the free market within the free market within capitalist economies capitalist economies Invisible hand of the Invisible hand of the market market
- 73. Adam Smith (cont.) Adam Smith (cont.) Laissez-faire - Government stays out of Laissez-faire - Government stays out of business practices “hands off” to let the business practices “hands off” to let the market place determine production, market place determine production, consumption and distribution. consumption and distribution. Individual freedom and choice Individual freedom and choice emphasized. emphasized.
- 74. Principles of Capitalism Principles of Capitalism Competition – more Competition – more businesses means businesses means lower prices and lower prices and higher quality higher quality products for products for consumers (US!) to consumers (US!) to buy. buy.
- 75. Principles of Capitalism Principles of Capitalism Voluntary Exchange – Voluntary Exchange – businesses and businesses and consumers MUST be consumers MUST be free to buy or sell free to buy or sell what and when they what and when they want. want.
- 76. Principles of Capitalism Principles of Capitalism Private Property – Private Property – Individuals and Individuals and businesses MUST be businesses MUST be able to get the able to get the benefits of owning benefits of owning their OWN property. their OWN property. Government doesn’t Government doesn’t control it. control it.
- 77. Principles of Capitalism Principles of Capitalism Consumer Consumer Sovereignty – Sovereignty – consumers get to consumers get to make free choices make free choices about what to buy about what to buy and this helps drive and this helps drive production production (Demand drives (Demand drives Supply). Supply).
- 78. Principles of Capitalism Principles of Capitalism Profit Motive – people Profit Motive – people want to make or save want to make or save $$$$. Their “Self $$$$. Their “Self Interest” motivates Interest” motivates Capitalism. Capitalism.
- 79. Principles of Capitalism Principles of Capitalism Social Safety Net – Social Safety Net – “Mixed Economy” idea “Mixed Economy” idea that says the government that says the government should NOT allow people should NOT allow people to suffer in economic to suffer in economic crisis (natural part of crisis (natural part of Capitalism’s “Business Capitalism’s “Business Cycle”), but provide Cycle”), but provide security instead – Social security instead – Social Security, Unemployment Security, Unemployment Insurance, etc. Insurance, etc.
- 80. Mixed Economy/Socialism Mixed Economy/Socialism Government involvement Government involvement and ownership and control and ownership and control of property, of decision of property, of decision making, and companies. making, and companies. Government control of Government control of business business Social “safety net” for Social “safety net” for people people Socialism Socialism Common in Europe, Latin Common in Europe, Latin America, and Africa America, and Africa
- 81. John Maynard Keynes John Maynard Keynes The Invisible Hand The Invisible Hand doesn’t always work. doesn’t always work. “ “The long run is a The long run is a misleading guide to misleading guide to current affairs. In the current affairs. In the long run we are all long run we are all dead.” or . . . the dead.” or . . . the trouble is people eat trouble is people eat in the short run. in the short run.
- 82. Keynesian Economics (cont.) Keynesian Economics (cont.) Government should Government should intervene intervene in economic in economic emergencies through tax and spending emergencies through tax and spending (Fiscal Policy) and changing the money (Fiscal Policy) and changing the money supply (Monetary Policy). supply (Monetary Policy). This is done to smooth out the business This is done to smooth out the business cycle (expansion and recession) and keep cycle (expansion and recession) and keep inflation inflation low. low.
- 83. Part 4: Labor Issues Part 4: Labor Issues
- 84. LABOR LABOR Wages – what companies Wages – what companies pay employees for their pay employees for their labor (usually based upon labor (usually based upon an hourly rate). an hourly rate). Blue Collar Blue Collar Manufacturing, work with Manufacturing, work with hands hands Usually the ‘labor’ in Usually the ‘labor’ in production production Salary – the amount of Salary – the amount of pay a person gets over a pay a person gets over a year (especially for year (especially for “professional” jobs). “professional” jobs). White Collar White Collar ‘ ‘Office’ jobs Office’ jobs Usually control production Usually control production
- 85. When Production Decreases When Production Decreases Downsizing Downsizing – laying off employees to save costs. – laying off employees to save costs. Outsourcing Outsourcing – sending jobs and manufacturing overseas or – sending jobs and manufacturing overseas or contracting to outside companies to save money. contracting to outside companies to save money. Bankruptcy Bankruptcy – government allows business to restructure it’s – government allows business to restructure it’s debt, but now all profits go to paying off debt rather than to debt, but now all profits go to paying off debt rather than to the owners/investors. the owners/investors. Out of Business Out of Business – lose all your business, money, and profits. – lose all your business, money, and profits. The current trend in the U.S. is that manufacturing jobs are The current trend in the U.S. is that manufacturing jobs are declining declining
- 86. How does ‘Labor’ protect itself? How does ‘Labor’ protect itself? Labor Unions: organization of workers who Labor Unions: organization of workers who have banded together to achieve common have banded together to achieve common goals goals – Wage protection Wage protection – Workplace safety Workplace safety – Benefits Benefits – Job protection Job protection
- 87. Collective Bargaining and Strikes Collective Bargaining and Strikes Collective Collective Bargaining Bargaining – Representatives of Representatives of the Union and the the Union and the company negotiate company negotiate a contract for the a contract for the workers; usually workers; usually they rely on they rely on compromise compromise Strikes Strikes – When an agreement When an agreement can’t be reached, can’t be reached, workers stop workers stop working to try to working to try to force the hand of the force the hand of the company company