2Scarcity and the Science of Economics Section 1Scarcity and the Science of Economics
3Basic EconomicsEconomics is very important to your understanding of society and how our economy effects youEconomics is the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources (study of needs vs. wants)
4ScarcityPeople want what they don’t have? Most people are not satisfied with what they haveScarcity – The condition that results from society not having enough resources to produce all the things people would like to have.
5“There is no such thing as a free lunch” Want vs. NeedPeople confuse Wants and Needs all the timeNeeds- A basic requirement for survival(food, Clothing, Water, Shelter)Wants- A way of expressing a need. Not necessarily what we always need but what we desire.“There is no such thing as a free lunch”(TINSTAAFL)
63 Basic Questions of Scarcity What to Produce?How to Produce?For Whom to Produce?
7ProductionWith every item we produce we must figure in the factors of production.Land- “gifts of nature” or natural resourcesCapital (capital goods)- the tools, equipment, machinery, and factories used in the production of goodsLabor- people and all of their efforts, abilities, and skillsEntrepreneurs- risk takers in society who do new things with existing items in our economy.
8ProductionProduction takes place when all factors of production are present
9Scope of EconomicsIn society we must be able to control our behaviors and carefully utilize the scarce resources we have.There are 4 key elements we must utilize in order to do thisDescription – (GDP) Gross Domestic Product- the $ value of all final goods and services (this is the most comprehensive measure of a country’s total output and is key in the overall economic health of a nationAnalysis- Allows us to understand the who, what, why, and when of productionExplanation- Where economists explain why things happened the way they did.Prediction- After looking at all other factors this allows us to see the good and bad decisions we made and how they effected production.
11Goods, Services, and Consumers A good is an item that is economically useful or satisfies an economic want (book, car, computer, etc.)Consumer Goods- Intended for final use by individualsCapital Goods- When manufactured goods are used to produce other goods and services.Durable Goods- Any good that lasts more than 3 years.
12Goods, Services, and Consumers Services are basically a work that someone performs for someone.A service is similar to a good but the main difference is that it is intangible meaning it cannot be touched
13Goods, Services, and Consumers Consumers are basically the people who buy and/or use the goods
14Value, Utility, and Wealth Value = Worth in dollars and centsUtility- capacity to be useful and provide satisfactionFor something to have value it must be scarce and have utility.When you talk about value you have to see what makes items have value.Scarcity-how rare is it?Utility- how useful is it?
15Value, Utility, and Wealth Wealth – The accumulation of products that are tangible, scarce, useful, and transferrable from one person to anotherAdam Smith authored the book “The Wealth of Nations” in 1776He believe by getting a nation’s people to specialize in skills it would increase productivity and therefore make a nation more wealthy.
17Circular Flow MarketFactor Markets are where productive resources are bought and soldProduct Market are where producers sell their goods and services.Markets serve as the main link between the individuals and businesses
18Productivity and Economic Growth When a country is healthy it contains economic growth or basically an increase of total output of goods and services.If you have and increase in productivity it benefits both the consumer and the producer
19SpecializationAccording to Adam Smith Specialization is the key to a productive society.When you have specialization of labor workers do fewer jobs and instead specialize in certain jobs in order to get better at those jobsThis can include labor and capital
20Invisible hand The invisible hand is described by Adam Smith Adam Smith says that a true free market economy is run by an invisible hand or where the government does not interfere but only assists the people as needed.
21Economic Choices and Decision Making Chapter 1Section 3Economic Choices and Decision Making
22Economic FactorsWhat types of events can lead to changes in the economy?War is one because it reduces the amount of people available for labor.Inflation – prices rise while wages remain constant or dropNatural Disasters- Weather etc.
23Trade Offs and Opportunity Cost In our society people are given many choices this is known in economics as Trade-offsWith choices come options and this is what leads to economic success or failure in many different factors including standard of living or (quality of life)This is where opportunity cost comes into play.Opportunity cost is the cost of the next best alternative use of money, time, or resources.Example / paying $500 for 2 television you think it is the same but which one is the most valuable
24Production Possibilities You have to look at the production frontier possibilities diagram to gain the concept of opportunity costIn this diagram economists look at the following factors:Possible alternativesFully employed resourcesOpportunity costThe cost of idle resourcesEconomic Growth
25Thinking like an Economist In order to be successful economically you must condition yourself to think like an economistIn order to do this you must look at the following items when making economic decisions:Build simple modelsEmploy a cost-benefit analysis of itemsTake, small, incremental stepsFinancial Capital or (money) isa generally a result of this typeof thinking
26Economics in the WorldWhen events happen in 1 part of the world effect other parts of the world it is known as Economic Interdependence.One form of capital utilized world wide is known as human capitalHuman capital provides the following effects in an economy:Allows businesses to invest in peopleAllows businesses to invest in healthcare for employeesAllows businesses to invest in specific job training for employees