Economics Chapters One and Two: Intro to Basic Economics.
One and Two.
“The dismal science.”
What is the fundamental
2. Economics is the study of how we can lesson the
problem of scarcity.
3. How can we BEST use the worlds resources to help
the most people.
Needs v. Wants.
1. A human need is
something that a
being must have to
2. Food, air, water,
3. It is the most
basic of the material
1. Wants go beyond
what is needed to
2. Human wants are
3. We live in a world
of scarce resources.
4. When needs and
wants collide it
What are the three economic
1. WHAT to produce?
2. HOW to produce it?
3. For WHOM?
4. Who answers these three questions in the United
5. The CONSUMER!
6. CONSUMER SOVEREIGNTY!
Dictatorship or Democracy?
1. If one person or small group answers
the three economic questions, then it’s a
2. If the consumers answer the economic
questions it’s a democracy.
3. All market economies today are
Which factor of production do
economists say is the most
Capital v. Labor Intensive
1.It is the heavy use
of technology and
machines to operate
s are very expensive
to buy and operate.
1. The heavy use of
human labor to maintain
and build the economy.
2. In poor countries
human labor is cheap
3. Human labor is much
slower and less
What is Production?
1. Production is:
Putting land, labor, and capital into
Value, Utility, and Wealth
1. VALUE is worth that can be expressed
2. Utility. In order to have VALUE it must
have a purpose or use.
3. WEALTH is the accumulation of money
or goods with VALUE.
Division of Labor
1. This is the mass
production of products.
2. Mass production
brought the price of
3. This helped create a
4. Fredrick Taylor-Time
1. Breaking down
complex tasks down
into simple ones.
2. This is the heart of
mass production and
the division of labor.
3. What American is
famous for maximizing
the division of labor idea
1. Modern/Market economies must trade with other
regions of the world.
2. No country/region has all the resources it needs to
3. Countries that trade the most are the wealthiest.
4. 80% of all the worlds trade is between the North
America, Europe, Japan, China, and Australia.
“No country ever went broke because of good trade.”
1. Workers now compete internationally for
2. Poor countries:
Are overpopulated and have rock bottom wages
compared to wealthy countries.
Have few taxes.
Have weak or no environmental laws.
1. Revolutionary, economic thinker who championed
the free market economy.
2. All the powerful European powers practiced
3. Mercantilism is the control of the economy by the
4. The government controls trade and creates
5. Mercantilism led to colonies.
The Wealth of Nations-1776
1. There should be NO
government involvement with
business or trade.
2. No government
3. No government barriers
for individuals to go into
business for themselves.
1. Who/What would regulate
business and trade?
“ INVISIBLE HAND.”
“Greed and Competition”
would regulate the markets.
2. This “Hands Off” by
government was/is called:
Adam Smith Continued….
1. His book was published in
2. What do you think the
would think of it?
3. What caused the Boston
4. Which side do you think
Smith would take?
1. Republicans today view
Adam Smith as one of their
main economic thinkers.
2. Alexander Hamilton is also
a Republican founder.
3. A Republican today is
known as a “Hamiltonian.”
1. Is Fisher an entrepreneur?
2. What eminent domain issue did he have to fight?
3. Without the PROFIT MOTIVE, where would the
treasure be today?
4. Should it be held only by a museum?
5. Without investors, could Fisher have found the
Economic Choices and
2. Opportunity Costs.
3. Production Possibilities.
4. Cost-Benefit Analysis.
5. The above helps us make rational choices.
It is an ORGANIZED way of managing the four factors
of production to provide for the wants and needs of the
Three Kinds of Economic
1. Everyone knows their role/place.
2. Exact certainty about WHAT, HOW, for
WHOM to produce.
3. Custom, custom, and more custom.
1. Discourages new ideas.
2. Stagnant society.
3. Lack of economic progress.
Advantages of a Command
1. Economy can change directions quickly. Soviet
2. Guaranteed jobs.
3. Most resources available to all, but limited.
1. Needs first, few wants provided.
2. Hard work not rewarded.
3. Large government bureaucracy.
4. Little social/political freedom.
Advantages of a Free Market
1. Adjusts quickly to consumer demand.
2. Lots of individualism/innovation.
3. Less government interference with business and
4. A lot of social/economic/political freedom.
5. Great variety of consumer goods.
1.Little support for some people.
2. Worker uncertainty.
3. Market failures-
1. Market failure and imperfect
competition makes it necessary for the
government to intervene in the economy.
2. The “Invisible Hand” does work with
Monopolies and oligopolies.
Free Enterprise v. Capitalism
1. F.E. is a competitive system that has no government
barriers for individuals to go into business for
2. Capitalism is a competitive system that involves
large financial investments in technology and
3. Both are motivated by the PROFIT MOTIVE.
4. Private property and free exchange of
goods/services are also protected. Maryland v.