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Goal 7 Introduction to Economics

Econ Intro

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Page 1: Econ Intro

Goal 7

Introduction to Economics

Page 2: Econ Intro

What is Economics?

• Economics: the study of how people seek to satisfy their needs and wants by making choices

Page 3: Econ Intro

THE FACTORS OFPRODUCTION

GOAL 7: Economics

Page 4: Econ Intro

There are 4 Factors of Production:

• Land or Natural Resources

• Capital

• Labor

• Entrepreneurship

Page 5: Econ Intro

Land or Natural Resources

• Materials that are NATURALLY MADE and transformed into something else

• Examples:• Oil• Timber• Land• Crops• Natural gas• Milk

Page 6: Econ Intro

2 Types of Natural Resources• RENEWABLE– Can be replaced

or renewed or recycled

– ex: wood, water, crops

• NON-RENEWABLE– Once used,

resource is gone– Ex: Oil, Natural

Gas, Gold

Page 7: Econ Intro

LABOR

• PEOPLE who work to produce a good or service

• Example:– Construction worker– Teacher– Line cook

Page 8: Econ Intro

CAPITAL

• MAN MADE instruments that assist in making something else

• Examples:– Hammer– Robot– Book– Computer

Page 9: Econ Intro

Human Capital• Investment

in education or training for a laborer for more productive laborers

Page 10: Econ Intro

Entrepreneurs• People who RISK

time and money ($) to start their own business

• Examples:– Oprah– Ben & Jerry’s– Little girl selling

Lemonade– Donald Trump

Page 11: Econ Intro

Needs v. Wants

• Need: something people need that is necessary for survival (ex: air, food, shelter)

• Want: an item we desire but that is not essential to survival

Page 12: Econ Intro

Three Basic Economic Questions

What good and services should be produced?– Should money go to schools or a new city park??

• How should these goods and services be produced?– How much of the product are we going to produce?

• For whom should these goods and services be produced?– After goods and services have been produced, society must

determine how goods and services should be distributed among members of society…use a price system in the US

Page 13: Econ Intro

Every CHOICE you make has a…

• Monetary cost: price you paid for a decision ($)

• Trade off: ALL of the alternative choices

• Opportunity cost: the best alternative, your second choice

Page 14: Econ Intro

Scenario #1

• Dondrick studied for his exam instead of watching American Idol or doing his laundry.

Trade-offs:•American Idol,

laundry

Monetary cost:•none

Opportunity cost:•American Idol

Page 15: Econ Intro

Scenario #2

• Iesha has decided to go to college instead of getting a full-time job or joining the Navy.

Trade-offs Job, Navy

Monetary costs:

Money paid for college

Opportunity cost: job

Page 16: Econ Intro

• B’day gift, jacket

Trade-offs:

• Price of the Jordans

Monetary cost: • B’day gift for mom

Opportunity cost:

Scenario #3

• Michael bought a pair of Air Jordans instead of buying his mom a birthday gift or a new jacket for himself.

Page 17: Econ Intro

Productivity

Page 18: Econ Intro

How does an assembly line increase a company’s profits?

• Divides up the tasks to make a product and allows a worker to specialize in a task to make it faster• More product = more profit

Page 19: Econ Intro

Division of Labor

•Dividing up the tasks required to make a product.

Page 20: Econ Intro

Specialization

• Giving a worker a specific task to complete• Worker becomes a professional in the task

Page 21: Econ Intro

Automation

• creating a product with the assistance of machinery

Page 22: Econ Intro

Types of Workers

• Blue Collar:– wage-earning workers who wear work clothes ex:

mechanics, miners, maids • White Collar:

– office and professional workers who do not wear a uniform. Ex: lawyer, teacher, doctor

Page 23: Econ Intro

Types of Workers

• Skilled workers:– Workers who get special training to do their job,

earn more for their education– Ex: mechanic, teacher, doctor

• Unskilled workers:– workers do not have any special training that

allows them to earn more than a basic wage – Ex: fast food employee, cashier

Page 24: Econ Intro

What will happen to a company if they add too many factors of production?

• Law of diminishing returns– At a certain point adding another factor of

production will make a company less productive (lose $)

• Graph– What do you think this would look like?

Page 25: Econ Intro

Law of Diminishing Returns

• The tendency for a continuing effort toward a particular goal to decline in effectiveness after a certain amount of success has been achieved.

Page 26: Econ Intro

Supply and Demand

Page 27: Econ Intro

How can comparative advantage influence what a company or country produces?

• Comparative advantage: a country, individual, or company can produce a product at a lower cost than a competitor

• Produce products for less money to make a greater profit

Page 28: Econ Intro

TYPES OF ECONOMIES

Page 29: Econ Intro

3 Basic Economic Questions

• What to produce?• How to produce?• For whom to produce?

Page 30: Econ Intro

• What is produced?– Traditional items are

produced according to custom

• How is it produced?– According to custom,

no specialization or division of labor

• For whom is it produced?– For the local people

Traditional Economy

Page 31: Econ Intro

Command / Planned Economy

• What is produced?– Gov’t decides what they

believe to be best for the whole country.

• How is it produced?– Gov’t owns companies,

dictate how to make things. Use specialization and division of labor

• For whom is it produced?– Produce only what is needed

for the country

Page 32: Econ Intro

Market Economy• What is produced?– Whatever sellers want to

produce. Supply and demand are the main factors in decision making

• How is it produced?– Competition exists.

Business is run for profit. Specialization, division of labor used.

• For whom is it produced?– Produce for whoever will

buy in your country and throughout the world

Page 33: Econ Intro

Mixed Economy

• Most countries have mixed economies. They combine aspects of the 3 economies to make what is best for them.

• Ex: United States– mostly market (individuals buy and sell)– Some command (gov’t rules and restrictions)

– Little traditional (Native American, Amish communities)