Economics

Is… Definition

The study of how people seek to satisfy their needs and wants by making choices

Needs

Food Water Shelter Air Love Clothing Transportation Health Care Education

Wants

Car Job Technology Bigger Better Brighter Newer

Scarcity

Limited quantities of a resource to meet unlimited wants and needs

WE MUST CHOOSE

Choices

Child Adolescent Adult Rich Poor

Allocation

To set aside resources for a specific function Macro Micro

Opportunity Cost/Benefit

The most desirable alternative given up as the result of a decision

The desired gain of making a decision

Opportunity Cost/Benefit

Benefit Cost

New Shoes

Speeding

Fast food

Sports

Part-time job

Lease a car

College Ed.

Thinking at the Margin

Deciding whether to do or use one more unit of some resource

Production Possibility Frontier

A

B

Efficiency

Using resources to maximize the production of goods and services

Underutilization

Using fewer resources than an economy is capable of using

Vacation Destination

You will now participate in a “real life” decision-making simulation. Pretend you have saved $1000 for a Spring Break fling with your friends. Use your best allocation of your resources to get the most “bang for the buck.” Shop with 5 different travel agencies to create the best package. Think at the Margin.

Scarcity

Definition Micro Macro

VacationDestinationSimulation

Trade-off

An alternative sacrificed when a decision is made Your family The USA

Specialization

The concentration of the productive efforts on a limited number of activities Your family The USA

Key Economic Questions

All societies must answer… What to produce? How to produce? For whom to produce?

“Poop to Profits”

Economic Systems

Free Market – prices, distribution, wages, unhindered by government control

Free Enterprise (USA) Socialist (China) Command – production and

investment are regulated by central authority

Reflections

Reflect on who makes the decisions about the use of resources, like how much crude oil will be converted to gasoline to be used in your car.

How could a Free Market encourage people to use more renewable sources of energy?

How would a Command Economy get people to convert to renewable sources?

US Free Enterprise

The US free enterprise system emphasizes the economic goals: Efficiency Freedom Innovation

Consumer sovereignty dictates: Prices Quantities Quality

Self-interest

One’s own personal gain

GREED IS GOOD

Best classes, best assignment Motivates you to learn on your own

Try something new Work hard

Incentive

An expectation that encourages people to behave a certain way School rules Laws Taxes Sales Advertising

Competition

The struggle among producers for the dollars of consumers

Rational Ignorance Incentive make sense We don’t know, or choose not to care

Advertising Activity

Market

Arrangement that allows buyers and sellers to exchange things Factor Market Product Market

Production

Factors Land Labor Capital Entrepreneurship

Payments Rent Wages Interest Profits

- Combining factor resources to create final goods and services.

Consumption

Determinants Income Attitude Substitute Complement

Price Sales Used instead of Used together

- Use of final goods and services

Circular Flow Model

Firms Households

Factors:L,L,C

Payments:R,W,I

Goods & Services

PricesProduct Market

Factor Market