Presentation on theme: "What is Economics? Social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their needs."— Presentation transcript:
1 What is Economics? Social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their needs. Economics is about the “ordinary business of life” Economist Alfred Marshall CHAPTER 1: What is Economics?
2 Learning Objectives Unit 1 Describe the nature of human wants and how they are satisfied.Identify and define the four factors of production.Define the meanings of scarcity and opportunity cost.Explain the key ideas in the economic way of thinking.Explain what it means to think at the margin.Describe the choices businesses face and a major goal of business.Identify the basic economic decisions facing all societies.Describe the two branches of economics.Explain why private property, specialization, voluntary exchange, the price system, market competition, and entrepreneurship are considered the pillars of free enterprise.Describe the nature of command, traditional, and mixed economic systems.Explain the three kinds of models economists use.Describe how the Circular Flow of Money, Resources, and Products explains the function of a free market economy.Define money and explain its three functions.Identify the goals of the U.S. economic system.
3 3 basic economic questions: What goods/services to produce?How should goods/services be produced?For WHOM will goods/services be produced?2 Primary Wants:Physical wants: necessary to maintain a healthy, safe lifefood, clothing, housingPsychological wants: are not necessary to human existenceSpecial car
4 Want-Satisfaction Chain Human wantsLand, labor, capitalGo into productionResulting in goods and servicesWhich go through distributionGoods made available for consumptionResulting in WANT-SATISFACTION
5 The Economic Way of Thinking People ChooseAll Choices Involve CostsPeople Try to Make Good ChoicesPeople Respond to IncentivesPeople Gain When They Trade VoluntarilyOur Choices Are Future OrientedOur Choices Are Influenced By the Choices of Others
6 Factors of Production Land Labor Capital: buildings, tools, and machines people create and use to produce final goods and servicesEntrepreneurship
7 1. People Choose Scarcity= Wants > Available resources Scarcity is the Economic Problem
8 2. All Choices Involve Costs Opportunity cost: highest valued alternative given up as a result of making a choiceWhat you choose to spend $10 on.Cost/Benefit thinkingMarginal Thinking: how much time to spend on one activity and how much time to spend on something else…thinking at the margin.Marginal: the extra or additional costs or benefits of a decision
9 3. People try to make good choices We think “at the margin”Incentives: positive reward that results from making a choice or behaving in a certain wayHigher wages, lower prices, a good gradeDisincentives: a negative or withdrawn rewardFines or punishmentsEconomists try to predict how people respond to incentives and disincentives4. People Respond to Incentives
10 5. People Gain When They Trade Voluntarily In a voluntary exchange between two people,one person benefits more than anotherboth people believe that they are benefitingcash is always exchangedthere is no benefit or cost to either person
11 A high school student buys dinner at a restaurant A high school student buys dinner at a restaurant. The restaurant offers a special price which offers 20 percent off the regular price of dinner. In this exchange,the restaurant benefits, student does notthe student benefits the restaurant does notthe student and the restaurant both believe they are benefitingneither benefitnot enough information is given to know who benefits
12 6. Our Choices Are Future Oriented You cannot change a choice made in the past, but can make choices about the future; based on what has happened in the past.Example: Housing MarketExamples: Actions of Congress, banks7. Our Choices Are Influenced By the Choices of Others
13 Profit = Total Sales > Total Costs Positive difference between total sales and total costsTotal sales MUST be greater than total costsMARKET ECONOMY:Capitalism or free enterprise?Capitalism: means of production are privately owned and operated for profitFree enterprise: the condition that allows people to freely make choices in their economic rolesEconomy that relies on voluntary trade as the primary means of organizing and coordinating production.Market: arrangement that allows buyers and sellers to make exchangesConsumers weigh the costs and benefits of choices
14 Macro/MicroEconomics Macro: study of the economy as a wholeBIG pictureHow fast are prices rising?Unemployment? Poverty?Micro: study of the individual consumers and businessesIndividuals, families, and businesses.What wages should we pay our employees?Should we invest in new computers?
15 CHAPTER 2: Free Enterprise in the U.S. Free enterprise: people in their economic roles are FREE to make CHOICES6 PILLARS OF FREE ENTERPRISE:Private PropertySpecializationVoluntary ExchangeThe Price SystemMarket CompetitionEntrepreneurship
16 PROPERTY: SPECIALIZATION: Property: land = buildings = machines = tools = natural resources = clothing = appliances = musical instrumentsPrivate Property:Resources and products owned by individuals or businessesPublic Property:Resources and products owned by governmentSPECIALIZATION:Process in which businesses and people focus on producing one or a few parts of an entire product\Example: Gap vs. Apple, Starbucks: coffee, music
17 Voluntary Exchange: The Price System: People must buy and sell products to acquire all things they want from the economyTime!Example: pencil pg. 18The Price System:Uses monetary prices as a message system to facilitate exchanges between buyers and sellersWhen you buy something what is usually the first thing you look at?Branding?Prices = MAIN MESSENGER in a market economy
18 Market Competition: competition among businesses 1st form: competition in resource marketsLand, labor, and capital that businesses use to produce goods and servicesGetting a great education!Compete more effectively against other workers (sellers of labor) but businesses (buyers of labor) will compete more intensely to employ you = get a better job and earn a higher wage!2nd form: competition in markets for productsAll the goods and services consumers buy, from running shoes to haircutsRent, buying a house, concert tickets
19 Entrepreneurship: OVERALL: Motivation that drives business leaders to compete and react to changing conditions in the marketOVERALL:6 pillars = essential to the success of a market economyT or F:The government involvement in how the U.S. economy operates is limited.
20 The circular flow model: Households: word economists use to describe living in the United States regardless of the type of house or apartment2 important roles:Members of households = consumersResource owners: they own their laborLand, capitalThe circular flow model:Illustrates how voluntary exchange worksHelps us understand the flow of resources into businesses
21 Barter: exchange of goods and services without using money Money: anything that is generally accepted as a payment for goods and servicesHamburgers instead of money?Barter: exchange of goods and services without using moneyEach person in the exchange wants what the other is offeringPudding cup.3 important functions of money:A medium of exchangeA store of valueA measure of value
22 Medium of exchange: Store of value: SAVE Measure of value: Instead of exchanging your labor for burgers, you can trade it for money.When people AGREE on the value of money, it become a medium, a means of exchange.Store of value: SAVEMeans that you can hold on to money to use it sometime in the future.Does not become old or stale like a burger.Measure of value:In an exchange, each product or resource has a single money pricePeople can compare money prices to find the best value for what they are buying or sellingCompare values of good, services, and resources
23 7 goals of the U.S. Economic System: Full employment: almost all people in the labor force are able to find workEconomic growth: increase in output of goods and servicesPrice stability: prices of goods, services, and resources do not fluctuate significantly either up or down, in short periods of time.Economic freedom: in choice of employment, buying, selling, use of our time, and other decisions related to our economy.
24 Economic security: means that the basic needs of every person should be met. This INCLUDES people who are unable to pay for their own way for whatever reason.Economic equity: fairness and impartiality = offer ALL citizens equal economic opportunitiesEconomic efficiency: getting the maximum output from the resources used to produce goods and services.Refers to the entire economy’s ability to get the most out of its limited resources.
25 Homework1. STUDY, STUDY, STUDY!2. Study guide sheet3. Workbook pages