Do Now:What do you think this quote means? “There’s no such thing as a free lunch.”
1) Everything has a cost to it 2) The cost can come from you or someone else 3) The cost can be money, time, and the things you are NOT getting
What is Economics? 1) The study of how people satisfy their needs and wants through the choices that they make 2) Study of the production and consumption of goods and services Includes:jobs/employment trade business/commerce money (and how it is spent)
Needs vs. Wants Need – basic requirement for survival Needs can also be immaterial (love, acceptance, success)
Want – a means of expressing a need (Ex. Food is a need, Pizza is a want) EVERYTHING ELSE that is not a need (ex: cell phones, cars) Often, wants are advertised as needs (we think that our wants are things we need)
Resources Goods – something that can be touched Services – work performed However, there are a limited amount of resources available
The Basic Economic Problem Unlimited WantsLimited Resources SCARCITY
Scarcity Because of scarcity, people must make choices on how to spend/distribute resources 1) WHAT to use the resources for 2) HOW to use the resources 3) WHO will have the resources
If you had a 25 th hour, what would you do? 1 st Choice2 nd Choice All other choices
Opportunity Cost What you are giving up (the cost of the opportunity) The value of the runner-up, the second choice It can be both positive and negative 1 st Choice2 nd Choice All other choices Opportunity Cost
2) Labor - people to work/human resources - can vary through quantity of people and quality of workers
3) Capital - something used for production Physical Capital: man-made resources used (tools, factories, machines) Human Capital: Knowledge, skills and abilities workers gain through education and experience
4) Entrepreneurship - leaders who decide how to combine Land, Labor and Capital to make new or innovative goods and services - take risks to start new companies and develop new ideas - Invest their time and money to help the economy grow
The most important factor you consider before you buy a good or service PRICE
Consumer (buyer): users of goods/services Producer (supplier, seller): create, market, and sell goods and services Market: The place where consumers and producers meet to determine the price of g/s and the amount of g/s that will be supplied
Demand The AMOUNT of a product that consumers want to BUY Consumers must be willing and able to make the purchase in order for there to be a demand
Law of Demand Price Demand = If the cost is down, people will buy more. Price Demand = If the cost is up, people will buy less
Human Behavior That Causes Demand 1) Substitution Effect : As the price of a good goes up it becomes more expensive than other goods, causing people to choose the less expensive product 2) The Income Effect: When the price of goods/services goes UP we feel POORER When the price of goods/services goes DOWN we feel RICHER Even though you FEEL richer/poorer you real income HAS NOT changed!
The menu for school lunch reads: Cheeseburger = $1.50 Slice of Pizza = $1.50 (Students usually buy about 500 cheeseburgers and 500 pizzas a day) If the price of beef goes up then the price of Cheeseburgers will go up too. Then the menu will change to: Cheeseburger = $2.50 Slice of Pizza = $1.50 (Students will then buy about 100 cheeseburgers and 900 pizzas a day.) This change in spending = the Substitution Effect
As the price of gas goes up it becomes more expensive to fill our cars. When gas was $1.00 a gallon, it cost $15 to fill my tank. If gas goes to $4.00 a gallon, it will cost $60 to fill my tank. That means I will drive fewer places in order to save my income.
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