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  • 1. ECONOMICS – CHAPTER 1 THE BASICS
  • 2. What is Economics?
    • The science that deals
    • with the production,
    • distribution, and consumption
    • of goods and services
    • The science that studies the choices people make as they try to satisfy their wants in a world of scarcity
  • 3. Key Terms
    • Want – things people desire to have but don’t necessarily need
    • What are our basic needs?
    • Resource – Anything that is used to produce a good or service. Examples: trees used to produce lumber for a house, a hammer used in construction, and human labor to produce the house.
  • 4. What is scarcity?
    • The condition in which our wants are greater than the resources available to satisfy those wants and we are forced to make choices.
    • Example: Maria earns $1,000 a month. She wants to go shopping for new clothes, buy ten new books, take a trip to Hawaii, and buy a new car. Given her income, Maria cannot have all these things, she must make choices.
  • 5. Opportunity Cost
    • The most highly valued opportunity or alternative given up when a decision is made
    The opp. Cost of buying a computer is taking a vacation Went on Vacation Bought a computer The opp. cost of watching TV is reading a book Read a Book Watched TV Opportunity cost What you would have done What you did
  • 6. Trade-Off
    • A situation in which gaining more of one thing usually means giving up something else, very similar to opportunity cost
  • 7. Production Possibilities Frontier (PPF)
    • A graphic representation of all possible combinations of two goods that an economy can produce.
  • 8. Rationing Device
    • A means for deciding who gets what portion of the available resources and goods.
    • Prices for goods and services is the most widely used rationing device for our society. If you are willing and able to buy something, it is yours.
  • 9. Marginal
    • In economics, marginal means additional. Economists believe that when people make decisions, they do not think of the total costs and benefits involved in the decision. They need to think about the marginal, or additional costs and benefits.
  • 10. Incentive
    • Something that encourages you to take action.
    • In a capitalist economy, profit motive provides an incentive to produce things consumers want to buy.
  • 11. Two main branches of economics
    • Microeconomics – the branch of economics that deals with human behavior and choices related to relatively small units – and individual, a single business, or a single market.
        • Example – Analyzing computer sales or unemployment in the auto industry
    • Macroeconomics – the branch of economics that deals with human behavior and choices as they relate to the entire economy, the big picture.
        • Example – Analyzing consumer spending in general or unemployment for the entire nation
  • 12. Goods
    • Anything that satisfies a persons wants or brings satisfaction. Goods are tangible, something you can touch.
        • Cars, Computers, DVD’s, Groceries
  • 13. Services
    • Tasks that people pay other to do for them. Services are intangible, they cannot be felt or measured.
        • Electrician, Mechanic, Plumber
  • 14. Three Factors of Production
    • Land – natural resources such as water, minerals, animals, and forests
    • Labor – the physical and mental talents that people contribute to the production of goods and services
    • Capital – refers to produced goods that can be used as resources to produce other goods such as machines, tools, computers, trucks, and factories