Economics Unit 1 The Economic Way of Thinking

Crash Course Economics Intro to Economics: Crash Course Econ #1 aLjXtPNZwz5_o_5uirJ8gQXnhEO aLjXtPNZwz5_o_5uirJ8gQXnhEO

Economic Reasoning Why are we a nation of couch potatoes?

Guide to Economic Reasoning 1.People choose. 2.People’s choices involve costs. 3.People respond to incentives in predictable ways. 4.People create economic systems that influence individual choices and incentives. 5.People gain when they trade voluntarily. 6.People’s choices have consequences that line in the future. 1.People choose. 2.People’s choices involve costs. 3.People respond to incentives in predictable ways. 4.People create economic systems that influence individual choices and incentives. 5.People gain when they trade voluntarily. 6.People’s choices have consequences that line in the future.

Scarcity and Abundance Scarcity forces people to make choices about the use of resources.

How important is the concept of scarcity when we see widespread evidence of abundance and scarcity?

People in the United States see abundance around them every day. Yet we also see that certain resources like water and food are wasted regularly…. How important is the concept of scarcity, given the widespread evidence of abundance and waste?

What is scarcity?

Scarcity A situation in which human wants are greater than the capacity of available resources to provide for those wants. A situation in which a resource has more than one valuable use.

Economists do not see a paradox here…. In economic reasoning, scarcity is a relative concept, not an absolute one. Many think it means not plentiful, but in economics something is scarce when it has more than one valuable use. For example, is it more important to have fresh drinking water or to water our crops?

But water that seems plentiful in a large lake or river…. …is scarce nonetheless because it has many mutually exclusive uses. Crop irrigation The production of electricity A harbor for shipping Fish habitat Recreational uses

So water, like many resources, can be abundant and scarce at the same time. Do you face scarcity? Write a definition of scarcity and provide two examples showing how you are confronted with scarcity. By Doc Searls from Santa Barbara, USA _08_03_bos-phx-rno143Uploaded by PDTillman, CC BY 2.0,

Economic Magic Creating Something from Nothing

Economics The study of how human beings choose to use scarce resources.

3 Basic Questions of Economics

What to Produce?

How to Produce?

For Whom Will It Be Produced?

As individuals are confronted with scarcity they must decide how to cope….

Time for a demonstration…

RulesIncentivesChoices

The Free Market Economy Economic Freedom

What are the characteristics of a free market economy? Free Market Economy Regulated by self- interest and competition Advantages: freedom, efficiency, growth Participants: Households and Businesses Needed because no one is self sufficient Voluntary exchanges take place in markets

Self-regulating market Economic Efficiency: Because it is self-regulating, a free market economy responds efficiently to rapidly changing conditions. Economic Freedom: Workers work where they want, firms produce what they want, and individuals consume what they want. Economic Growth: Free markets offer a wider variety of goods and services than any other system, because producers have incentives to meet consumers’ desires.

Quick Check In a free market system, how are incentives related to the principle of consumer sovereignty? Why do you think no country has a pure free market economy?