Economics, right!?Is it all about the Benjamins?

Economics is the science of how humans divide our scarce resources to fill needs and unlimited wants.

In other words…

Economics is the study, description, and analysis of the ways in which societies produce and distribute goods and services.

What is economics, anyway?

We mean…

EVERYTHINGYes, EVERYTHING that is produced in an economy…

From an oil change to corn-on-the-cob to national defense, prisons, and hospitals.

What you mean by goods and services?

What are three things in this cartoon you could not explain to someone?

Turn to the person next to you and compare your list.

If you had two or three in common raise your hand.

The basic question that economists are trying to answer is:

“How will we use our scarce resources to satisfy our

needs and wants?”

The answer varies… based on values…

Fairne

ssAbilityHard Work Equit

y

NeedsStatus

Is this an exact science?◦ No! Human behavior is mysterious… predictions

but

Economics is the science that specifically works to end hunger, overcome poverty, end crime, understand if a tax cut will really help society and how much?

WHY? WHHHHHHYYYYY?

AND NOW THE BASICS…

Microeconomics: Studying the behavior of small economic units, like individual consumers, or specific economic activities or phenomena.

Macroeconomics: Studying whole systems of production and distribution and the relationship between economic sectors.

Before we get into that we need some common vocabulary…

Two branches of the economic tree…

Opportunity Cost?◦The cost of the next best alternative. The cost of what you gave up.

Scarcity?◦When demand is greater than supply. ◦There are some rules about scarcity…

Do you remember…

1) In order for something to be scarce, people must first want it.

2) In order for something to be scarce, some people who want it must be unable to get it.

3) What is scarce is different at different times and in different places.

4) Scarcity also involves choosing among a variety of uses for a particular resource.

Four Laws of Scarcity

Needs or physical needs are things that are necessary for life

People living in groups also have collective needs◦ Satisfying collective needs

improves people’s quality of life.

Needs

Physical Needs

Collective Needs

People want many things that are not necessary for life.

There are two types of wants the more general…

Psychological wants

the more specific… Economic wants.

Wants

Do you want to look like this…

Or this…

Resources are what people use to make the things that satisfy their needs and wants

The three kinds of resources are 1) Natural resources2) People made resources3) Human resources

2) Management/Entreprenuership

So how do we do it?

Natural Resources

LAND

Human Resources

LABOR

People-Made Resources

CAPITAL

Economists have goals…

Freedom Efficiency Equity Security Stability

◦ Full employment◦ Price stability

Growth◦ Standard of Living

Economists need to have some common

assumptions…

What about the people?

1Economists try to explain and predict people’s choices and what effects those choices. They must assume that the decisions will be rational.

People make rational decisions when confronted with scarcity.

2People’s likes and dislikes influence the opportunity cost that someone is willing to sustain.

People have preferences that guide their choices.

3Studying economics is looking at not only the decision, but the implications of that decision on outside factors.

People’s decisions take the form of transactions in the market place.

4The market is the place where goods, services, and all the factors of production are bought and sold. Studying the market and how we function in it is very important.

Economic activity happens in the market.

5All modern economies use money as the medium of exchange in the market place.

There needs to be a medium of exchange… ours is money!

People make rational choices, expressing preferences in marketplace transactions that are valued in money.

Everything we will study in one sentence…

Write three things you learned today on the same piece of paper from the start of class…

Hand it in on the way out of class!