Introduction to Economics - definitions - approaches
- 1. Economics Economics Definition Definition Subject matter (traditional Vs modern Subject matter (traditional Vs modern approach) approach) Positive Vs Normative Positive Vs Normative Deductive Vs Inductive Deductive Vs Inductive Concept of equilibrium Concept of equilibrium
- 2. What are resources? What are resources? Definition: The things used to make other Definition: The things used to make other goods goods
- 3. 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
- 4. 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)
- 5. 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?
- 6. 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?
- 7. PRODUCTION, cont. PRODUCTION, cont. Goods – tangible things satisfies human Goods – tangible things satisfies human wants (you can touch it) products we can buy wants (you can touch it) products we can buy Services – Intangible things satisfies human Services – Intangible things satisfies human wants wants Capital Goods – goods used to provide Capital Goods – goods used to provide services or to make money services or to make money
- 8. 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
- 9. Production Production Transformation of inputs into outputs Transformation of inputs into outputs
- 11. 4 Factors of Production 4 Factors of Production
- 12. 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”)
- 14. GDP GDP is the sum of the market values, or is the sum of the market values, or prices, of all final goods and services prices, of all final goods and services produced in a country during a period of produced in a country during a period of time. time.