Basic Principles of EconomicsIt is study of how individuals,

families and businesses use limited resources to fulfill their unlimited wants

Wants v. NeedsWhat are they?

Choices-Scarcity-we can’t have it allFactors of Production-Land,

Labor, Capital and Entrepreneurship

Trade-Offs

Exchanging one thing for another

Opportunity Cost: the value of the next best alternative that has to be given up for the one chosen

Guns and Butter ExampleProduction Possibilities Curve

Shows the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time.

Production Possibilities Curve

Economic SystemsThe Three Basic Questions

to determine an economic systemWhat Should Be Produced?How Should It Be Produced?For Whom Should It Be

Produced?

Traditional

Answers questions according to traditions

Command

Government leaders answer the questions

Market

Individuals in the Market answer the questions

Types of Economic Systems

Mixed Economy-uses both of these

Mixed Economic SystemCombines a little of Command and

MarketMost Economies are this one!They are characterized by a basic

market system with government regulation---the more government regulation the more command it is

Making Comparisons Work with a partner and come up

with slogans that one might use for each economy-

Characteristics of American EconomyLimited Role of Government

Laissez-faire-”let the people do as they choose”

Adam Smith-”the invisible hand of the economy” is all of the FE factors working together keeping the economy healthy

Freedom of Enterprise -free to control the factors of production

Freedom of ChoiceProfit Incentive

The desire to make a profit-this motivates people to start businesses and be successful

More Characteristics

Private PropertyYou can own your own home

CompetitionRivalry among producers and

consumers

Goals of the US EconomyEconomic Freedom

Individuals can make their own decisions about jobs, private property, the market

Economic EffeciencyUsing resource wiselyCosts of economic actions do

not exceed the benefits

Economic EquityFair and justEqual pay for genders

Economic SecurityProtection against risk in the

economy-losing your jobAccidents, business failures

Economic StabilityAvoid extreme ups and downs

of the standard of livingEconomic Growth

Producing more and expanding the economy

Trade-Offs among goalsSecurity and Growth may go

against efficiency