Learning Goals Explain how wants and needs differ. Explain how scarcity faces people at all times. Define the four factors of production.
What is Economics? Economics- the study of how individuals and societies make choices about ways to use scarce resources to fulfill their needs and wants. To economists, everything other than basic survival is considered a want. Want begins as a luxury, or want, becomes to many a necessity.
The Problem of Scarcity The need to make choicesarises because everything that exists is limited. Scarcity- condition of not being able to have all of thegoods and services one wants, because wants exceed what can be made from all available resources at any given time. Income can be considered a scarce resource.Scarcity always exists becauseof competing alternative uses for resources
Factors Factors of production: Land- refers to natural resources without human intervention Labor- a human resource, including anyone who produces goods and services. Goods- tangible objects that can satisfy people’s wants Services- actions that can satisfy people’s wants Capital- previously manufactured goods used to make other goods and services Productivity- the amlunt of out-put [goods and services] that results from a given level of inputs [land, labor, capital]
Factors continued… Entrepreneurship- ability of risk taking individuals to develop new products and start new businesses in order to make profits 30% of new businesses fail Of the 70% that survive, only a few become wildly successful: i.e. Apple, Netflix, Verizon Technology- advance in knowledge leading to new and improved goods and services and better ways to producing them i.e. a computer is a technological advancement over a typewriter Today technology describes the use of science to develop new products and new methods for distributing goods and services
Learning Goals Explain how the concept of trade-offs is related to opportunity costs and the production possibilities curve.
Trade-Offs Trade-off: sacrificing one good or service to purchase or produce another. i.e.- if you choose to buy an iPod you are exchanging money for the right to own an iPod
The Costof Trade- Offs Result of a trade-off is what you give up in order to get something else i.e.- Time is a scarce resource, so you choose how to use it Opportunity cost- value of the next best alternative given up for the alternative that was chosen i.e.- studying instead of socializing with friends- you consider the single NEXT best alternative is the opportunity cost
Considering Opportunity Costs Being aware of trade-offs and their resulting opportunity costs is vital in economic decision @ all levels. i.e.- Congress votes $220 billion to finance needed highways, Congress could have voted for increased spending on new schools. The opportunity cost of building new highways is fewer schools.
Production Possibilities Curve Production possibilites curve- graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. Curve can help people and businesses determine how much of each item to produce, thus revealing the trade-offs and opportunity costs involved in each decision.
Explanation of the Production Possibilities Curve The classic example illustrates the potential production possibilities between military defense and civilian goods. Point A on the graph represents all resources being used to produce guns, Point E for butter. The amount of military goods given up in the year is the opportunity cost for increasing civilian goods production. Members of the federal government determine where on the curve the nation will be.
Review How are trade-offs and opportunity costs related? Answer: Every trade-off involves an opportunity cost. CREATE YOUR OWN PRODUCTION POSSIBILITIES CURVE: Include: “Hours Spent Online” on the Horizontal Axis; “Hours Spent Studying” on the Vertical Axis Write a caption explaining the opportunity cost of each activity
Describe & Explain theuse of economic modelsby economistsLearning Goal
The Division of Economics Microeconomics- the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms Macroeconomics- the branch of economic theory dealing with the economy as a whole and decision making by large units such as government
Economic Models Economy- the production and distribution of goods and servicers in a society Economic model- a thoery or simplified representation that helps explain and predict economic behavior in the real world Physicists, chemists, biologists and historians use models to understand the complex working of the world- economic models show visual representations of consumer, business, or other economic behavior
Hypothesis Some economists believe to stimulate the economy, taxes should be cut and government spending increased. Cutting taxes may put more money into consumers pockets which will increase personal spending and increase total production However some people fear that possible higher taxes in the future might cause them to save extra money rather then spend This illustrates how economists cannot take into account all of the factors that may influence people’s behavior
Schools of Economic Thought Economists deal with fact, their personal opinions and beliefs may nonetheless influence how they view those facts and fit them into theories The government under which an economist lives also shapes how he or she views the world As a result, all economists will not agree that a particulr thory offers the best solution to a problem Throughout American history, economists have stressed the importance of government maintaining a “hands off” in business and consumer affairs as a method of preventing increased unemployment and inflation
Values and Economics Learning about economics will help you predict what may happen if certain events occur or certain policies are follows. Values are the beliefs or characteristics that a person or group considers important, such as religious freedom, equal opportunity, individual initiative, freedom from want, and so on. Even having the same values does not mean that oeioke wukk agree about solutions to problems, strategies, or interpretations of data Economists only inform us as to likely short-term and long-term outcomes of these policies
Review Why are there Create a diagram like the different schools of one below to show how economic thought? economists use models to study the real world Answer: economists’ personal opinions and beliefs may Idea Test Hypothesis influence how they view facts and fit them to theories. The government under which economists live also shapes how they view the world