1. The document discusses basic economic concepts including scarcity, factors of production, opportunity cost, and different economic systems. 2. It provides an overview of the American economy, noting it has characteristics of both capitalism such as private property and competition, as well as some government intervention. 3. The circular flow model is presented as depicting how money and goods flow between households, businesses, and factors and product markets in a market economy.

1. UNIT #1 PRACTICAL 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 Problem SCARCITY = tension between unlimited wants and the limited productive resources available for satisfying these wants Needs are required for survival Wants are desired for satisfaction

4. How to make best use of limited productive resources to satisfy human wants Every Society must answer 3 questions 1. 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 effort 2. LABOR / Human Resources – human work effort both mental & physical 3. CAPITAL – man-made goods used to produce other products

6. The Other Guy: Final Factor of Production 4. 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 product Successful 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 Language Review Production Equation LAND + LABOR + CAPITAL = PRODUCT

9. Intangible can’t be touched / felt Services tasks that you pay other people to perform for you services are INTANGIBLE Tangible able to be touched Goods anything that satisfies a person’s wants & is TANGIBLE Durable - Used 3 + years and lasts Nondurable - Used 3 + years and does not last What’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 person Disutility- 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 products Our rationing device is price!!! Besides the price of items, what else influences who gets what?

13. Making Good Choices Without enough resources to satisfy our wants, we have to CHOOSE which wants we will satisfy Example: 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 Making Trade-Off Trade-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 Cost Opportunity 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 OC Discussion – What is your opportunity cost of going to the school dance?

15. Review: Opportunity Cost Both producers (those who provide goods/services) & consumers (those who use goods/services) incur opportunity costs when making decisions Ex. Business owner of insurance company Ex. Consumer purchasing carpet There’s No Such Thing as a Free Lunch!

16. Economic Systems An 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: Command Traditional Market

18. Circular Flow Model Model details the flow of money and goods in a market economy The factor market is where individuals sell their resources to businesses to gain income The product market is where individuals use their income to buy the goods & services businesses sell.

22. Characteristics of the American Economy

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 Government Yes, private individuals own factors of production BUT have to use them within legislated limits.

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 Choice BUYERS!! ***Consumers are free to buy what they want! ***Government may intervene when necessary…example: fixing prices!

30. Profit- $ left after all costs have been paid Profit Incentive-Desire to make create new businesses and products to seek profits DQ: Can businesses fail? How does this relate to entrepreneurship? #4: Profit Incentive

31. #5: Private Property Property 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 Competition Competition is the rivalry among businesses to win more business Benefits Higher levels of productivity Better quality products More products available LOWER PRICES!!! Do I buy “Payless Converse” or “real Converse”?

33. What do we want in our economy? FREEDOM GOVERNMENT

34. We know we are a Mixed Economy We have both private individuals owning factors of production with freedom of business, but we also have government regulation/ownership!