2 Economics The Science of Scarcity Or the Science of Choice The study of people producing and exchanging to get the things they want.The study of how individuals and societies make choices about ways to use scarce resources to fulfill their wants.
3 ScarcityWe have scarcity, because we have unlimited needs and wants, but limited resources.
4 Choice Because we have scarcity, we are forced to make choices. Everything that exists is limited.
5 Opportunity CostWhen we choose between alternatives that offer different benefits we must realize that there will be “Trade Offs.”Choosing is refusing the next best alternative.
6 6 Step Decision Process Identify/Define the Problem/Opportunity Study the EnvironmentList all Possible AlternativesCollaborate & Choose the Best AlternativeLaunch Your PlanEvaluate Your Progress, and Continue or Start over.
7 Voluntary ExchangeTwo or more people exchanging things of value voluntarily.Marginal Benefit > Marginal CostMB>MC
8 Factors of ProductionLandLaborCapitalEntrepreneurship
10 3 Economic Questions What to produce? Who will produce it? For whom will it be produced?
11 Four Types of Economic Systems Traditional – Customs, Traditions (Pioneers, Pilgrims)Market – Free Enterprise, Capitalism (U.S.A.)Command – Communism / Dictatorship (Cuba)Mixed – Socialism / High degree of Government intervention + Market (Sweden, France, Italy)
12 The Law of DemandAs the price of a good or service decreases consumers will want to by more of it, and visa versa:
13 The Law of SupplyAs the price of a good or service increases suppliers will want to make more of it, and visa versa:
15 Gross Domestic Product (GDP) The total value of goods produced and services provided in a country for a specific time period (Quarter or Year).Two successive quarters (3 months each) of a decline in GDP is classified as a recession.
16 Four Types of Unemployment Frictional – Temporary TransitionStructural – Lack of SkillsCyclical – Economic ContractionSeasonal – Temporary Work due to the season of the year
17 Wealth of Nations Written by Adam Smith in 1776 Provided the basis for our economic system of free trade and capitalismAlong with Thomas Payne’s “Common Sense” gave the literary motivation that helped fuel the Revolutionary War with Great BrittanThe invisible hand of self-interest results in the greatest good for society
18 3 Economic TheoriesAdam Smith – “The Wealth of Nations” – The Invisible Hand – Self Interest (Free Market)John Maynard Keynes – Keynesian Economics – Economic Stabilization through Government Intervention (Socialism)Karl Marx & Frederick Engels – “The Communist Manifesto” & “Das Kapital” – The end justifies the means.
19 Federal Reserve System The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and 12 regional Federal Reserve Banks in major cities throughout the United States.
20 Monetary & Fiscal Policy Monetary Policy – The Federal Reserve BankDiscount Rate / Interest Rates / Increase or DecreaseReserve Requirement / Credit / Loose or TightFiscal Policy – The Executive BranchThe Federal Budget / Surplus or Deficit / Inflation
21 3 Purposes of MoneyMedium of ExchangeStore of ValueMeasure of Price
22 Multiplier EffectAn effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.
23 MonopolyMonopoly - A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products.Oligopoly – Similar to a monopoly, except a few companies working together to limit or eliminate competition.
24 Perfect CompetitionIn economic theory, perfect competition (sometimes called pure competition) describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets.Example – The global auto industry
25 Economics The Science of Scarcity Scarcity is the fundamental economic problem that forces consumersand producers to use resources wisely.UnlimitedWantsLimitedResourcesScarcityChoicesWHATto produceHOWto produceFOR WHOMto produce
26 The Circular Flow of Economic Activity BusinessIncomeConsumerSpending$$Product MarketsGoods & ServicesGoods & ServicesBusinessIndividualsLandCapitalLaborEntrepreneursBuy ProductiveResourcesFactor Markets$$Paymentsfor ResourcesIncomefrom Resources
28 Global Economy 3 methods a nation can use to curtail imports: Tariffs (Import Tax)Quotas (Limits on Volume)Embargos (Blockade)Exchange Rates (Dollars / Euros, or Yen)Balance of Trade (Imports = Exports)