Pe intro to econ
- 2. What is Economics?The social science that studies the choices people make as they try to satisfy their wants in a world of scarcity.
- 3. The Fundamental Economic ProblemSCARCITY = tension between unlimited wants and the limited productive resources available for satisfying these wantsNeeds are required for survival Wants are desired for satisfaction
- 4. How to make best use of limited productive resources to satisfy human wantsEvery Society must answer 3 questions1. What goods and services will be produced?2.Howare goods and services to be produced?3. For whom are goods and services to be produced?
- 5. Factors of Production (Productive Resources)1. LAND / Natural Resources – “gifts of nature”, these are NOT created by human effort2. LABOR / Human Resources – human work effort both mental & physical3. CAPITAL – man-made goods used to produce other products
- 6. The Other Guy: Final Factor of Production4. Entrepreneur – risk takers who combine land, labor, and capital and turn them into new products
- 7. Role of the Entrepreneur What do they do?Combine factors of production to create productSuccessful entrepreneurs attract other firms to the industry (this helps everyone!)Search for profits = new products = competition = more production = lower prices for consumers (What’s this called?)
- 8. Other Basic Economic LanguageReview Production EquationLAND + LABOR + CAPITAL = PRODUCT
- 9. Intangiblecan’t be touched / feltServicestasks that you pay other people to perform for youservices are INTANGIBLETangibleable to be touchedGoodsanything that satisfies a person’s wants & is TANGIBLEDurable - Used 3 + years and lastsNondurable - Used 3 + years and does not lastWhat’s the difference between consumer and capital goods???
- 10. Why would you buy that?Utility - is a good’s or service’s capacity to provide satisfaction or usefulness, which varies with the needs and wants of each personDisutility- is a good’s or service’s capacity to provide dissatisfaction (unhappiness)
- 11. How do we assign value to products?Value is worth expressed in dollars and cents. For something to have value, it must be scarce and provide utility!Why is water worth so much less than diamonds? (Diamond-Water Paradox)
- 12. How do we decide who gets which products?We use a rationing device, a way of allocating our productsOur rationing device is price!!!Besides the price of items, what else influences who gets what?
- 13. Making Good ChoicesWithout enough resources to satisfy our wants, we have to CHOOSE which wants we will satisfyExample:Maria earns $1000 a month. She wants a new outfit, 10 new books, a trip to Hawaii, a new car, and many other things.Maria can pay the price of all of these things but can’t have them all. She has a decision to make!
- 14. Economic Decision MakingTrade-OffTrade-offs are the alternative choices people face in making an economic decision.To decide among our tradeoffs, we use cost/benefit analysis!Discussion – What are your tradeoffs of going to the next school dance?Opportunity CostOpportunity cost is the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.The OCDiscussion – What is your opportunity cost of going to the school dance?
- 15. Review: Opportunity CostBoth producers (those who provide goods/services) & consumers (those who use goods/services) incur opportunity costs when making decisionsEx. Business owner of insurance companyEx. Consumer purchasing carpetThere’s No Such Thing as a Free Lunch!
- 16. Economic SystemsAn economic system is the way a society coordinates the production and consumption of goods & services.How a society answers the three basic economic questions determines which type of economic system they are!Three Types of Economic Systems:CommandTraditionalMarket
- 18. Circular Flow ModelModel details the flow of money and goods in a market economyThe factor market is where individuals sell their resources to businesses to gain incomeThe product market is where individuals use their income to buy the goods & services businesses sell.
- 19. Businesses sellGoods andGoodsIndividuals buyservicesand servicesboughtsoldIndividualsBusinessesBuy and consume
- 20. Produce and sellgoods and servicesgoods and servicesOwn and sell factors
- 21. Buy and use factorsof productionof productionSell FactorsOf ProductionFACTORMARKETBuy Factors ofproductionIndividuals sellFactor PaymentsBusinesses buyThe Circular Flow of Economic Activity – Market EconomyPRODUCTMARKETConsumer SpendingProfit / RevenueIncome= Flow of inputs and outputs= Flow of dollars
- 22. Characteristics of the American Economy
- 23. Capitalism:Laissez-faire: “let the people do as they choose”
- 24. Government should let people (producers & consumers) make economic decisions, including owning resources, without gov’t restraintsDoes the U.S. practice capitalism? If so, how?#1: Limited Role of GovernmentYes, private individuals own factors of production BUT have to use them within legislated limits.
- 25. Free Enterprise System (same as capitalism)-
- 26. Individuals free to own and control the factors of production & make economic decisions
- 27. There are some government regulations-
- 28. Zoning laws, child labor laws, waste disposal, minimum wage, random inspections, etc.#2: Freedom of Enterprise
- 29. Who makes the decision about what should be produced, buyers or sellers?#3: Freedom of ChoiceBUYERS!!***Consumers are free to buy what they want!***Government may intervene when necessary…example: fixing prices!
- 30. Profit- $ left after all costs have been paidProfit Incentive-Desire to make create new businesses and products to seek profitsDQ: Can businesses fail? How does this relate to entrepreneurship?#4: Profit Incentive
- 31. #5: Private PropertyProperty can be owned by individuals, not just the government.A Few Examples: Houses, land, cars, clothing, or intellectual property. You can own anything you can afford!!DQ: Can the government take away property?
- 32. #6 CompetitionCompetition is the rivalry among businesses to win more business BenefitsHigher levels of productivityBetter quality productsMore products availableLOWER PRICES!!!Do I buy “Payless Converse” or “real Converse”?
- 33. What do we want in our economy?FREEDOMGOVERNMENT
- 34. We know we are a Mixed EconomyWe have both private individuals owning factors of production with freedom of business, but we also have government regulation/ownership!
Editor's Notes
- #9: Economic products include goods and services since both are produced
- #12: Valuable antique, coin, baseball card because the item is extremely scarce but being scarce doesn’t necessarily mean it has high value = water (diamond - water paradox essentials are less valued compared to other items), b/c of scarcity of diamonds1. Must be scarce & have utility2. Diamonds are scarce & have utility therefore they have high monetary value while water has utility but is not scarce enough in most areas to warrant high valueWhy It Matters TodayIs LeBron James "worth" $20 million a year? Many people's gut reaction will be to say no, that nobody who plays a game for a living should be worth that much money. Why should a guy who plays a kids' game make as much as a hundred or more brilliant scientists working to cure cancer?And if you define "worth" as a moral question, maybe that's a good point.But if you define "worth" as an economic question, it becomes a simple question of scarcity. How many people out there have LeBron James's talents? By our count... exactly one. If you're an upwardly mobile owner of an NBA team, with hundreds of millions of dollars in the bank and a burning desire to win a championship, LeBron James may well be worth $20 million. Truly unique talent is extremely scarce, and thus extremely valuable.The moral of the story: cultivate a unique talent, kids. (Of course, it also helps to be 6'8" tall, fast as a sprinter, strong as an ox, and incredibly coordinated. But there are other kinds of talents, too, just in case you don't match that description.)
- #20: Households (assumed to own factors of production) sell resources to businesses & businesses pay for resources they buy from households (a business pays a worker a day’s wage)Businesses sell goods & services to households & households pay for goods and services they buy from businesses (a consumer buys a sofa from a furniture company)Factor markets (firms make factor payments)- Entrepreneurs hire labor for wages & salaries, land is provided for rent, & money is loaned by the people or investedProduct markets - When individuals receive income they spend it on goods & services offered for saleProduct markets - Businesses receive money from selling goods & services to individualsFactor Markets-This money pays for land, labor, & capital bought in these markets, then use this to produce more goods/services
- #29: Both the gov’t and individuals play important roles with regard to production and consumption (who decides what varies from country to country)