This document provides an introduction to economics, including its key concepts and the American economic system. It discusses that economics is the study of how people use limited resources to satisfy unlimited wants. It also covers the three basic economic questions of what, how, and for whom to produce. Additionally, it explains the characteristics of the American mixed economy, including limited government role, freedom of enterprise and choice, the profit incentive, private property rights, and competition.

1. Unit #1Intro to Economics

2. What is Economics?Is the study of how people choose to use their limited resources to satisfy their unlimited wantsImportant Parts of Economics– CHOICES SCARCITY

3. ScarcityThe fundamental problem all societies face…Scarcity is the condition that results because people have limited resources but unlimited wantsWants > ResourcesTask! Identify a scarce resource.EVERYTHING IS SCARCE!

4. Three Basic Economic QuestionsWhat 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?

6. How do we satisfy our economic wants?We buy goods or services!

7. Good – a physical object (tangible) that has been produced for sale

8. Durable – last 3+ years

9. Nondurable – last up to 3 years

10. Service – work done by someone else for which someone is willing to pay How do we make goods & services?Use Factors of Production - The productive resources that go into producing goods and servicesProduction EquationLAND + LABOR + CAPITAL = GOOD/SERVICE inputs output

11. Factors of Production LANDAlso called Natural ResourcesConsider them “gifts of nature” such as air, soil, minerals, water, and plantsLABORAlso called Human ResourcesIncludes physical and mental activities that go into producing goods/servicesCAPITALIncludes tools, machines, buildings, and technologiesENTREPRENEURRisk taker who is responsible for combining land, labor, and capital to produce goods and servicesTask! Why are entrepreneurs the driving force in our economy?

12. Economic InterdependenceWhat 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 ActivitySell Goods & ServicesBuy Goods & ServicesProduct MarketRevenueConsumer SpendingCircular Flowof EconomicActivityIndividuals HouseholdsBusiness FirmsFactor Payments IncomeFactor MarketBuy Factors of Production to Make StuffSell Factors of ProductionFlow of Resources & ProductsFlow of Money

14. Understanding how all parts fit togetherCircular Flow of Economic Activity Represents a market economy

15. 2 main “markets”

16. Product Market:  Factor Market:where goods and services where the 4 factors ofare bought/sold production are bought/sold

17. Shows interdependence between businesses and individuals

18. Making Choices to Deal With ScarcityPeople 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 serviceTradeoffs – 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 MattersUnderstanding 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

22. Visualizing the Relationship…

23. Economic SystemsAn 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:CommandTraditionalMarket

25. Review of Economic SystemsA traditional economy relies on custom and tradition to dictate production and consumptionIn a command economy, decisions about production and consumption are made by a powerful ruler or central authorityIn a market economy, individual producers and consumers coordinate economic activity.

26. The American Economic SystemWe have a mixed economy!MARKETCOMMAND

27. What type of economy is best?FREEDOMGOVERNMENT

28. The U.S. mixed economyIn a mixed economy…Individuals:Own the factors of productionPossess freedom to produce or consumeMust operate under confines of lawGovernment:Protects workers and consumersRegulates business and preserves competitionProvide public goods/benefits

29. Circular Flow of Economic Activity – Mixed EconomySell Goods & ServicesBuy Goods & ServicesProduct MarketRevenueConsumer SpendingIndividuals HouseholdsBusiness FirmsGovernmentFactor Payments IncomeFactor MarketBuy Factors of Production to Make StuffSell Factors of ProductionFlow of Resources & ProductsFlow of Money

30. Characteristics of the American Economy

31. The government should let people (producers & consumers) make their own economic decisions, with few gov’t restraintsFoundation for Limited Government comes from ideas such as…