Economics

What is Economics? What does the word ‘Economics’ mean to you?

What is Economics? Economics The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources

What is Economics? The Fundamental Economic Problem Grass is always greener on the other side… Scarcity the condition that results from society not having enough resources to produce all the things people would like to have

What is Economics? Needs and Wants Need Want A basic requirement for survival and includes food, clothing, shelter Want A way of expressing a need

What is Economics? Three Basic Questions What to produce? How to produce it? For whom do we produce it?

What is Economics? What to produce? What should society use its resources to produce? A society cannot have everything its people want, so it must decide what to produce Housing Military equipment

What is Economics? How to produce it? should factory owners use mass production methods that require a lot of equipment and few workers, or should they use less equipment and more workers?

What is Economics? For whom to produce? After a society decides what to produce and how, the things produced must be allocated to someone

What is Economics? The reason people cannot satisfy all their wants and needs is the scarcity of productive resources Factors of Production resources required to produce the things we would like to have Land Capital Labor Entrepreneurs

Factors of Production Land “gifts of nature” Natural resources not created by human effort Deserts, fertile lands, forests, minerals, cattle, whales, sunshine, climate Because only so many natural resources are available, we can think of them as being in limited supply

Factors of Production Capital Capital Goods Financial capital Tools, equipment, and factories used in the production of goods and services Financial capital The money used to buy the tools and equipment used in production

Factors of Production Labor People with their effort, ability, and skills This group will vary over time due to population growth, immigration, famine, war, disease

Factors of Production Entrepreneurs Risk-takers in search of profits

Factors of Production Production When all factors of production – land, capital, labor, and entrepreneurs – are present, production, or the process of creating goods and services, can take place

The Scope of Economics Economics is the study of human effort to satisfy seemingly unlimited wants with scarce or limited resources A social science because it deals with the behavior of people as they deal with this basic issue Description, analysis, explanation, and prediction

The Scope of Economics Description The description of economic activity GDP or Gross Domestic Product The dollar value of all final goods and services, and structures produced within a country’s borders in a 12 month period

The Scope of Economics Analysis Why are prices of some items high while others low? Why do some people earn higher incomes than others? How do taxes affect people’s desire to work and save?

The Scope of Economics Prediction Economics is always concerned with prediction What will raising taxes do to consumers? Who do we raise taxes for? Economics deals with the study of what is or what tends to be The study of economics helps us to become more informed citizens and better decision makers

Basic Economic Concepts Goods, Services, Consumers Why do economic products require prices? These goods and services are useful These resources are scarce These goods and services are transferrable to others

Goods, Services, Consumers Consumer Goods Capital Goods What are goods that can fall under both categories? Durable vs. nondurable…

Goods, Services, Consumers Work that is performed for someone Intangible, something that cannot be touched Examples? Doctors, lawyers, teachers Haircuts, home repairs, concerts

Goods, Services, Consumers “The consumer is a person who uses goods and services to satisfy wants and needs. As consumers, people indulge in consumption, the process of using up goods and services in order to satisfy wants and needs.”

Value, Utility, Wealth Consider this: Why do some things have more value than other things?

Value, Utility, Wealth Paradox of Value The situation where some necessities have little monetary value, whereas some non-necessities have a much higher value Can you think of any examples that fit this model? Classic example is water and diamonds!

Trade-off: alternative choices Opportunity Cost: the cost of the next best alternative use of money, time, or resources

Trade-Offs and Opportunity Cost Let’s say I was going to give you $50 I’m not… This is strictly hypothetical I want you to list 5 things you would buy with that $50 Not 5 things that total $50, but 5 $50 things Answer the following questions for each thing you wrote down: Is it less than $50? Is it durable? Would my parents approve? Are there other expenses necessary? Can you use it any time? Based on your answers for each of the $50 things, I want you to rank which thing you would buy first, then second, then third,…