How Economic Systems Work Intro to Economics How Economic Systems Work

Needs vs. Wants Needs are things we must have to survive Food Water Shelter Clothes Wants are things we desire to make life more comfortable and enjoyable Entertainment Vacations Toys

What is Economics? Economics is the study of how we make decisions in a world in which resources are limited Our wants vs. our needs Economics also includes how things are made, bought, sold and used

Micro- and Macroeconomics Microeconomics- look at the small picture; study the behavior of individuals and businesses Macroeconomics- look at the big picture; study the economy in whole countries, whole industries, or societies Economic Model- the theory that tries to explain human economic behavior

What choices do we have to make? Goods: physical objects such as shoes and shirts Services: actions or activities that one person performs for another (ex: haircuts, tutoring, dental checkups, etc)

Why do we make certain economic decisions? Scarcity!!!

What is scarcity? Scarcity is when there is a limited supply available to meet unlimited wants Scarcity occurs whenever we do not have enough resources to produce all the things we would like to have Scarcity forces people to make choices about how they will use their resources

What are some things you WANT? List 5 things you want more than anything 

Trade-Offs Out of the 5 things you want, choose the thing you want THE MOST! All items not picked are called Trade-Offs

Making Trade-Offs A trade-off is the alternative you face if you decide to do one thing rather than another For example, you use a field to grow tobacco means the field cannot be used to grow soy beans.

Opportunity Cost Opportunity Cost is the cost of the next best alternative use of time and money when choosing to do one thing rather than another In other words, opportunity cost is what you must forgo in order to get something Example- If you decide to stay after school for tutoring, the opportunity cost is hanging out with your friends

Shortage Shortage: NOT the same as scarcity. A shortage occurs when producers will not or cannot offer goods or services at the current prices Can be temporary or long term (wars and droughts can create shortages)

GOAL OF ECONOMICS Solving the problem of scarcity!