Economics 8.4.1

The Fundamental Economic Problem There is not enough to go around…resources are limited. Economics- the study of how we make decisions in a world where resources are limited.

Scarcity Needs- things required for survival Examples? Wants- things we would like to have to make life more comfortable & enjoyable Scarcity- when we don’t have enough resources to have all of the things we would like to have.

Making Economic Decisions Because of scarcity, we have to make some decisions about how to use our resources. How do you make a decision?

Trade-offs Trade-off- the alternative you face if you decide to do one thing rather than another. Examples: taking more time to study means less time to talk to friends, and spending more time talking to friends means less time to study. If the government spends more money on education it means less if available for medical research, etc.

Opportunity Cost What is the cost of going to college? Not just books, tuition, etc. Also the full-time income you are not earning because you are studying & going to class Opportunity cost- the cost of the next best use of your time or money when you choose to do one thing over another. can be more than just money (time, inconvenience, possible discomforts)

Your role as a consumer. Consumer- a person who buys or uses a product. Choices for consumers Pay with cash Credit- get the product now, pay later (credit card, charge account, water, gas, electricity) Use a check or debit cards (money comes directly from your bank account)

Budget Budget- a plan for making and spending money Balanced budget- income is equal or greater than spending. Video

Saving Reasons for saving Major purchases (home, car, etc.) Emergencies It helps the economy by providing money for others to invest and spend. It allows businesses to expand by borrowing the money you’re saving. You can earn interest- payment for loaning someone your money.

72 = interest rate needed Rule of 72 This formula can help you determine how many years it will take for your money to double. 72 = years to double investment interest rate 72 = interest rate needed years to double

Demand Demand- desire, willingness and ability to buy a good or service let’s make a demand schedule Cost of the pack of gum # you are willing to buy $.50 $1.00 $1.50 $2.00 $2.50

Demand The demand schedule can be made into a demand curve. $ # $50 Video Games $50 $40 $30 $20 $10 $0 $ # $50 100 $40 150 $30 180 $20 230 $10 300 $5 400 Price 50 100 150 200 250 300 350 400 Quantity

Law of Demand Law of Demand- the quantity demanded and price move in opposite directions If the price is high,…? If the price is low,…?

Factors affecting demand Changes in the number of consumers Changes in consumers’ income Changes in consumers’ tastes Changes in consumers’ expectations Changes in substitutes (pen/pencil, butter/margarine, coffee/tea) Changes in complements (computers/software, cars/gasoline)

Supply The amount of a good or service producers are willing to sell. Let’s make a supply schedule Cost of Pizza by the slice # you are willing to sell $1 $2 $3 $4 $5

Supply The supply schedule can be made into a supply curve. $ # $50 Video Games $50 $40 $30 $20 $10 $0 $ # $50 275 $40 225 $30 180 $20 105 $10 55 $5 30 Price 0 50 100 150 200 250 300 Quantity

Law of Supply Law of Supply- Suppliers will normally offer more for sale at higher prices and less at lower prices. If the price is high…. If the price is low…

Factors affecting supply Changes in cost of resources. Changes in productivity. (worker efficiency) Changes in technology. (can cut costs) Changes in government policies, taxes & subsidies Expectations of producers. ( predicting consumer behavior)

Combining Supply & Demand The supply & demand curves can be combined to find the best selling price. Video Games $50 $40 $30 $20 $10 $0 $ # demanded # supplied $50 100 275 $40 150 225 $30 180 $20 230 105 $10 300 55 $5 400 30 Price 0 100 200 300 400 Quantity

Equilibrium price- the price at which supply & demand are equal What is the equilibrium price for video games? $50 $40 $30 $20 $10 $0 Price 0 100 200 300 400 Quantity

At what price/s is there a surplus of video games? Surplus- the amount of supply for which there is no demand; extra (when supply is greater than demand) At what price/s is there a surplus of video games? $50 $40 $30 $20 $10 $0 Price 0 100 200 300 400 Quantity

At which price/s is there a shortage of video games? Shortage- when supply cannot meet the demand; not enough (when supply is less than demand) At which price/s is there a shortage of video games? $50 $40 $30 $20 $10 $0 Price 0 100 200 300 400 Quantity

What can we Learn from toys? Hula hoops & silly bandz

Intro to the hula hoop In 1958, Wham-O, Inc. began marketing the Hula Hoop in the United States. Sales of the Hula Hoops sky-rocketed during the year, in the first months over 25 million were sold, within the year over 100 million. Similarly today, Silly Bandz has taken off in sales since the summer of 2008. According to Robert J. Croak, founder of Brainchild Product the producer of Silly Bandz, from a small warehouse in Toledo, Ohio has gone from shipping 20 to 1,500 boxes a day. In 1994, the film The Hudsucker Proxy portrays a fictionalized account of the demand for Hula Hoops as they were introduced into the market.  

Discussion questions Why does a business owner lower the price of products that are not selling quickly? When would a business owner have the incentive to raise prices? What does a higher price than before for a good or service communicate to consumers about the demand for that product?

Intro to silly bandz Today, Brainchild Products, the makers of Silly Bandz are experiencing a large increase in demand for their products similar to that of Hula Hoops in 1958. The rise in demand for Silly Bandz; however, has not as yet been accompanied by a rise in the price for the product. Instead producers of Silly Bandz have responded by largely increasing their production of Silly Bandz.

Discussion Questions What information is being communicated to the business owner by the $5 price of Silly Bandz? What can the business owner do to ensure that the Silly Bandz are allocated to those consumers, which value them the most?