BASIC ECONOMIC CONCEPTS Chapter 1.3 Notes Davidovich

BELLRINGER: Do you think like an economist? Quiz yourself. Answer the 10 true/false items on the sheet you picked up. You have 5 minutes. GO!

NEEDS AND WANTS Need – a basic requirement for survival Examples? food, clothing, shelter, communication, love, acceptance, knowledge Want – a means of expressing a need Food…………pizza, hamburger, taco Car? Shoes?

Goods, Services, and Consumers Free products – plentiful, no one owns them, no price is attached Examples? Air, sunshine Not scarce enough to be an economic concern Economists are concerned with economic products – goods and services that are: Useful Relatively scarce Transferable to others

Goods, Services, and Consumers Goods – tangible commodities like books, cars, CDs consumer good: intended for final use by the individual Examples? Food, shoes, dishwasher, car capital good: a manufactured good used to produce other goods Robotic arm, bakery oven, computer durable good: any good that lasts 3 years or more when it is used on a regular basis (examples?) nondurable good: item that lasts for less that 3 years when it is used on a regular basis (food, most clothing items, writing paper)

Goods, Services, and Consumers SERVICE – work that is performed for someone Who is in the service industry? Teachers, lawyers, doctors, Snoop Doggy Dog CONSUMERS – people who use goods and services to satisfy wants and needs Consumption: the process of using up goods and services in order to satisfy wants and needs Conspicuous consumption: the use of a good or service to impress others Examples? Diamonds, fancy cars

VALUE, UTILITY, and WEALTH Value – something that has worth that can be expressed in dollars and cents. Is determined by the price someone would pay for the item Ex: accordion Paradox of Value – “diamond-water” paradox Something of value must also have Utility – the capacity to be useful to someone. Utility may vary from one person to the next. Examples? So…………….for something to have value it must be scarce and have utility.

VALUE, UTILITY, and WEALTH Wealth – the sum of those economic products that are tangible, scarce, useful, and transferable from one person to another.

PRODUCTIVITY Production – process of creating goods/ services (when the factors of production are present) examples? Productivity – efficient use of productive resources increases when more output is produced with the same or fewer inputs usually discussed in terms of labor, but ALL factors of production are included Businesses buy efficient capital goods. Farmers buy fertile lands. Increases also occur with…………….

Division of Labor – when workers perform fewer tasks more frequently Specialization – productive inputs do whatever task they are able to do best Division of Labor – when workers perform fewer tasks more frequently People Robots States (Iowa = corn) Countries (Saudi Arabia = ?) Productivity increases when firms invest in Human Capital – sum of skills, abilities, health, and motivation of people. Why do you want your employees to be happy? Healthy? Provided for?

Let’s have some fun! Imagine that you are managers of the STRAIGHT AND TRUE PAPER AIRPLANE CO. Describe what makes your paper airplanes so great. What are your airplane construction procedures? What steps need to be taken for a one-man operation? Now consider this: How could each airplane be made if it were constructed by 5 people who specialize in the various steps? Which is more efficient? Why?

ECONOMIC INTERDEPENDENCE Def: actions in one part of the country or world have an economic impact on what happens elsewhere. Weather Scarcity (oil) Market – a location or other mechanism that allows buyers and sellers to deal readily in a certain economic product. Local Regional National global

Individuals earn money in factor markets – markets where productive resources are bought and sold When individuals receive money, they spend it in product markets – markets where producers offer goods and services for sale This is all part of a Free Enterprise Economy – one in which consumers and privately owned businesses make the decisions of WHAT, HOW, and FOR WHOM to produce.