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Pe unit 1 student notes
- 1. Unit #1 Intro to Economics
- 2. What is Economics? Is the study of how people choose to use their limited resources to satisfy their unlimited wants Important Parts of Economics– CHOICES SCARCITY
- 3. Scarcity The fundamental problem all societies face… Scarcity is the condition that results because people have limited resources but unlimited wants Wants > Resources Task! Identify a scarce resource. EVERYTHING IS SCARCE!
- 4. Three Basic Economic Questions What to produce? How to produce? For whom to produce? 3 Q’s are answered in order to make decisions about the ways limited resources will be used.
- 5. Answering the 3 basic economic questions in a Market Economy [i.e., U.S.] What to produce? What should we devote our resources to? What do the consumers want? How to produce? What methods should be used in production? What is most efficient? For whom to produce? Who can afford the product?
- 7. Good – a physical object (tangible) that has been produced for sale
- 8. Durable – last 3+ years
- 9. Nondurable – last up to 3 years
- 11. Factors of Production LAND Also called Natural Resources Consider them “gifts of nature” such as air, soil, minerals, water, and plants LABOR Also called Human Resources Includes physical and mental activities that go into producing goods/services CAPITAL Includes tools, machines, buildings, and technologies ENTREPRENEUR Risk taker who is responsible for combining land, labor, and capital to produce goods and services Task! Why are entrepreneurs the driving force in our economy?
- 12. Economic Interdependence What does ‘interdependence’ mean? Is our world becoming economic interdependent or independent? Economic Interdependence: the actions of one part of the country (world) has an impact on what happens elsewhere
- 13. Circular Flow of Economic Activity Sell Goods & Services Buy Goods & Services Product Market Revenue Consumer Spending Circular Flowof EconomicActivity Individuals Households Business Firms Factor Payments Income Factor Market Buy Factors of Production to Make Stuff Sell Factors of Production Flow of Resources & Products Flow of Money
- 15. 2 main “markets”
- 16. Product Market: Factor Market:where goods and services where the 4 factors ofare bought/sold production are bought/sold
- 18. Making Choices to Deal With Scarcity People seek to maximize their utility when making decisions. This requires them to consider tradeoffs. Utility – the satisfaction of benefit a person receives from consuming a good or service Tradeoffs – the exchange of one benefit or advantage for another (alternate choices)
- 19. Examples… Some choices are easy to make… Hmm…Should I have pizza or a hoagie for lunch today? Other decisions are agonizing… Should I get out of bed and go to school today or should I sleep in? ALL TRADEOFFS HAVE ADVANTAGES!
- 20. Opportunity Cost When comparing the top 2 choices, it is the BENEFIT of the nextbestalternative that must be sacrificed to satisfy a want. Opportunity Cost – The best thing we give up to get what we want
- 21. Why it Matters Understanding the opportunity costs/tradeoffs of different choices in life makes you a better decision-maker! You always have to give something up…”There’s No Such Thing As a Free Lunch” Individuals, Businesses, & Societies incur tradeoffs when making decisions
- 23. 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
- 25. Review of Economic Systems A traditional economy relies on custom and tradition to dictate production and consumption In a command economy, decisions about production and consumption are made by a powerful ruler or central authority In a market economy, individual producers and consumers coordinate economic activity.
- 26. The American Economic System We have a mixed economy! MARKET COMMAND
- 27. What type of economy is best? FREEDOM GOVERNMENT
- 28. The U.S. mixed economy In a mixed economy… Individuals: Own the factors of production Possess freedom to produce or consume Must operate under confines of law Government: Protects workers and consumers Regulates business and preserves competition Provide public goods/benefits
- 29. Circular Flow of Economic Activity – Mixed Economy Sell Goods & Services Buy Goods & Services Product Market Revenue Consumer Spending Individuals Households Business Firms Government Factor Payments Income Factor Market Buy Factors of Production to Make Stuff Sell Factors of Production Flow of Resources & Products Flow of Money
- 30. Characteristics of the American Economy
- 32. Capitalism: system where individuals can own the factors of production and make their own economic decisions
- 33. Laissez-faire: “let the people do as they choose”#1: Limited Role of Government .
- 35. However, there are some government regulations such as…#2: Freedom of Enterprise
- 36. Consumers are free to buy what they want! The government may intervene when necessary though such as fixing prices. #3: Freedom of Choice DQ: Why do buyers control the marketplace?
- 37. The desire to work harder and/or creating new businesses and products to seek profits We get to keep our rewards!!! Ex. Overtime pay or patents Profit- $ left after all costs have been paid #4: Profit Incentive
- 38. #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?
- 39. #6 Competition Competition is the rivalry among businesses to win more business and make more profits The benefits of competition include: Higher levels of productivity Better quality products More products available LOWER PRICES!!!
Editor's Notes
- ECONOMIC DECISIONS MUST BE MADE IN ORDER FOR SOCIETY TO HAVE EFFICIENT PRODUCTION AND DISTRIBUTION OF GOODS/SERVICESSociety must choose based on its needs. (make sure there is a demand)Society must choose based on its resources. (especially technology access)Society must choose based on its population and other available markets. (ability to pay to distribute or everyone equally?)How might the economic decisions of a mountainous island society differ from those of a mountainous landlocked society?Produce more military equipment or housing?More equipment used or workers?Who gets products (professionals, gov’t employees)
- Economic products include goods and services since both are produced
- HOW AN ECONOMY WORKSHouseholds (assumed to own factors of production) sell resources to businesses & businesses pay for resources they buy from households (a business pays a worker a day’s wage)Businesses sell goods & services to households & households pay for goods and services they buy from businesses (a consumer buys a sofa from a furniture company)Factor markets (firms make factor payments)- Entrepreneurs hire labor for wages & salaries, land is provided for rent, & money is loaned by the people or investedProduct markets - When individuals receive income they spend it on goods & services offered for saleProduct markets - Businesses receive money from selling goods & services to individualsFactor Markets-This money pays for land, labor, & capital bought in these markets, then use this to produce more goods/services
- Everyone cannot have everything they want! Therefore, who decides who gets what? Our choices, based upon utility help to decide!
- There may be numerous tradeoffs to a decision, there is only one opportunity cost! (the cost of our decision)
- Ex. Entrepreneur who uses a building to sell car insuranceEx. Homeowner purchases new carpetEx. Government provides universal healthcare to its citizensBecause limited resources, businesses could buy something else or consumer could have used time to do something elseBECAUSE THERE ARE ALWAYS ALTERNATIVE USES FOR LIMITED RESOURCES, EVERY ECONOMIC DECISION HAS AN OPPORTUNITY COSTAs consumers, must realize the “cost” of buying an item is not really the price, rather it is the most valued item that cannot be boughtAs producers, the opportunity cost is the next most valuable good or service that is not produced as a result of the decision to produce something elseWhy It Matters TodaySometimes opportunity costs can vastly exceed the sticker price of an item. Imagine you scored a ticket to the Super Bowl. You paid $200 for your ticket, a stretch for your budget but worth it for a once-in-a-lifetime opportunity. You sit down in your seat next to some schmuck who admits he paid $5000 to a scalper for his ticket. Five grand! That's madness.But hold on. Your ticket just cost you five grand, too, even though only $200 in cash ever left your wallet. How's that work? Well, if the schmuck next to you was willing to buy a seat for $5000, then you could have sold yours at that price, too. The opportunity cost of you using your ticket is the five grand you didn't make by scalping it. Hope it was a good game!Trade-offs create opportunity costs, one of the most important concepts in economics. Whenever you make a trade-off, the thing that you do not choose is your opportunity cost. To butcher the poet Robert Frost, opportunity cost is the path not taken (and that makes all the difference). You bought that bike? Then the snowboard was your opportunity cost. Decided to work on the Fourth of July? Your opportunity cost was a relaxing day hanging out with the fam at the BBQ.Everything has opportunity costs. If you just bought something, you could have always chosen to buy something else instead. If you just chose to spend your time in a particular way, you could have always done something else. "Something else" is your opportunity cost.
- Protector – 40 hour work week, sensible working conditions, health benefits, agencies like FDA regulates medicine & food to protect consumerRegulator – Sherman Anti-Trust Act of 1890 prevents monopolies (wants to preserve competition), regulates SS/welfare/unemployment (these protect people too!)
- HOW AN ECONOMY WORKSHouseholds (assumed to own factors of production) sell resources to businesses & businesses pay for resources they buy from households (a business pays a worker a day’s wage)Businesses sell goods & services to households & households pay for goods and services they buy from businesses (a consumer buys a sofa from a furniture company)Factor markets (firms make factor payments)- Entrepreneurs hire labor for wages & salaries, land is provided for rent, & money is loaned by the people or investedProduct markets - When individuals receive income they spend it on goods & services offered for saleProduct markets - Businesses receive money from selling goods & services to individualsFactor Markets-This money pays for land, labor, & capital bought in these markets, then use this to produce more goods/services
- Zoning laws, child labor laws, waste disposal, minimum wage, random inspections, etc.