Balancing a budget Our goal is to learn the nuances of balancing a budget. In order to do so, we must first learn some basic economic principles. Use this power point tutorial to help master these principles. NEXT PAGE

Economic Principle #1: Resources A resource in anything that is used to obtain needs and wants. Examples of resources:  Money to purchase a snack  Gas so you can travel in your vehicle  Education so you can get a better job  Employees to help work at a restaurant NEXT PAGE

Economic Principle #2: needs v. wants Need – This is generally considered to be anything necessary for physical survival (food, clothing, shelter) Want – Anything that is not a need (usually considered luxury items) Rule of thumb – If you will physically die without it, it is a need. If not, it is a want NEXT PAGE

Let’s test your understanding on the next few slides. Is the following a need or want? 1. Water (click the correct picture) NEEDWANT

Need or Want? 2. A high school diploma (click the correct picture) NEED WANT

Need or Want? 3. A car (click the correct picture) NEED WANT

Economics Principle #3: Scarcity Scarcity – The lack of a resource.  Unfortunately, there is not an infinite amount of resources in existence.  Because of scarcity, people and countries are forced to make choices concerning their needs and wants. For people, this is part of balancing a personal budget. You will have to make choices regarding your money (resource) and how you want to spend it (scarcity). This is what we call trade offs and opportunity costs. NEXT PAGE

Economic Principle #4: Trade offs and Opportunity Costs Trade off – This is the simple exchange of one thing for another. Examples:  Money for a soda  A pencil for a pen  Sleep for school Opportunity Cost – This is what you give up when making a decision. Examples:  The opportunity cost for buying a soda is money.  The opportunity cost for receiving a pen was giving up your pencil.  The opportunity cost for going to school was giving up sleep. This goes back to resources and scarcity. Budgeting is all about making choices. If you choose one thing, you must give up something else. NEXT PAGE

On the next few slides, let’s test your understanding of opportunity costs by answering some questions. 1.Which of the following choices would be the opportunity cost of using a credit card? Click the correct answer Having the product you want now instead of later Losing the use of future income You get to build a good credit score

Opportunity Cost – Question 2 2. What is the opportunity cost for not studying for your final exam? Click the correct answer The opportunity to receive a good grade on your exam. The opportunity to spend more time with your friends. The opportunity to earn more money at your part time job.

Opportunity Cost – Question 3 3. Which would be the opportunity cost for volunteering on the weekend? Click the correct answer Receiving extra credit for class Your personal time The satisfaction you would receiving by helping others.

Economic Principle #5: Revenue v. Expenditures Revenue – This is the money (income) that you are bringing in. Revenue can be viewed as your primary resource in budgeting. Expenditures – This what you will be spending your money on. Expenditures can be viewed as your bills when budgeting.  The plan for balancing your revenue (resources) and expenditures is called a BUDGET If your revenue exceeds your expenditures, you have a surplus of money (money left over). If your expenditures exceed your revenue, you will be in debt. This is why it is important to make good choices regarding your resources…REMEMBER OPPORTUNITY COSTS! NEXT PAGE

Economic Principle #6: Law of Demand The word demand means the amount your are willing to buy. Law of demand – This law says that when price goes up, consumer demand goes down. When price goes down, consumer demand goes up. Just think about when you want to buy something. Would you rather pay a high price or low price? A demand curve slopes downward from left to right. Notice that as the line slopes down, price gets lower, but quantity demanded gets higher. An increase in demand causes curve to shift right. A decrease in demand causes curve to shift left. NEXT PAGE

Economic Principle #7: Law of Supply The word supply means the amount that is available. Law of Supply – This law says when price rises, supply rises, and when price lowers, supply lowers. The law of supply is based on the producer’s perspective, not the consumer’s. The producer is trying to make money (the consumer is trying to save money) The supply curve slopes upward from left to right. As you go up the line, you see as price rises, quantity supplied also rises (look at definition). An increase in supply causes the graph to shift right. A decrease in supply causes the graph to shift left. NEXT PAGE

Supply and Demand together  If you put supply and demand curves on the same graph, you can see how a change in one will affect price.  Where the supply and demand curves cross is called equilibrium price. This is where the consumer agrees to buy and the producer agrees to sell.  Prices going up is called inflation.  Understanding why prices go up and down is an important concept in balancing a budget. NEXT PAGE

Answer the questions on the next few slides to check your understanding of supply and demand 1.There is only one supplier of computers, and they are required for your college course. Which of the following is most likely to happen? Click an answer The price will increase The supply will decrease The price will decrease

Question 2 – Supply and Demand 2. Which of the following best explains why the grocery store would put hamburger meat on sale? Click the correct answer The supply of hamburger is too low There is high demand for hamburger meat There is too much supply of hamburger meat

Question 3 – Supply and Demand 3. Which answer explains why the equilibrium price of swim trunks would decrease in the Fall? Click an answer A decrease in demand causes the demand curve to shift left, indicating a decrease in price. An increase in supply causes the supply curve to shift left, indicating a decrease in price. An increase in demand causes the curve to shift left which indicates a decrease in price.

Congratulations! You have completed the lesson on basic economic principles. Now it is time to test your knowledge and work on a real budget. End Show

Outstanding! You Are Correct! Go to next page

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Outstanding! You Are Correct! Go to next page

Outstanding! You Are Correct! Go to next page

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Outstanding! You Are Correct! Go to next page

Outstanding! You Are Correct! Go to next page

Outstanding! You Are Correct! Go to next page

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