1. Chapter 1 Welcome to Economics!
Principles of Economics
Chapter 1 Welcome to Economics!
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2. Figure 1.1
Economics is greatly impacted by how well information travels through society. Today, social media giants Twitter, Facebook, and Instagram are major forces on the information super highway. (Credit: modification of work by Manuel Iglesias/Flickr Creative Commons)

3. Chapter summary
ECONOMIC CONCEPTS
CIRCULAR FLOW
ECONOMIC SYSTEMS

4. Resources used in production of goods and services:
Economic concepts
Resources used in production of goods and services:
Labor or Human Resources
Land or Natural Resources
Capital or Capital Resources

5. Scarcity: Not freely available
Economic concepts
Scarcity: Not freely available
Resources are scarce; they are limited in supply.
In order to use resources to produce more of one good, we must be ready to produce less of another good.

6. Economic concepts
Homeless people are a stark reminder that scarcity of resources is real

7. Opportunity Cost: The unavoidable cost of making choices
Economic concepts
Opportunity Cost: The unavoidable cost of making choices
Value of the best alternative forgone
What you give up to get something

8. To solve the economic problem, the society has to make choices
Economic concepts
Economics: the study of allocation and use of scarce resources to satisfy unlimited human wants
To solve the economic problem, the society has to make choices

9. Economic concepts
Microeconomics: study of economic behavior of individual consumer and producer and market structure
Macroeconomics: study of economic behavior of the entire unit and its problems (e.g., inflation, unemployment, recession)

10. Adam Smith, The Wealth of Nations, 1776
Division of Labor: Divide a job into discrete tasks and have each worker perform an assigned task, thus becoming more productive (e.g., the assembly line).

11. Workers on an assembly line are an example of the divisions of labor.
Division of labor
Workers on an assembly line are an example of the divisions of labor.
(Credit: Nina Hale/Flickr Creative Commons)

12. John Maynard keynes
A capitalistic economy can get stock in a deep downturn with massive unemployment.
To recover, the government must play an active role by spending money to create jobs and incomes.

13. The circular flow of income
Circular Flow: A model depicting interactions between economic actors within markets
Markets are where buyers and sellers negotiate transactions
Actors are market participants: Households, Firms, Government

14. The circular flow of income
Goods and Services Market: Where buyers and sellers of goods and services negotiate and conduct exchange
Labor Market: Where buyers and sellers of labor resources negotiate for wages and hours of work
Capital Market: Where banks and financial institutions provide loanable funds for households and firms

15. The circular flow of income
The circular flow diagram shows how households and firms interact in the goods and services market, and in the labor market. The direction of the arrows shows that in the goods and services market, households receive goods and services and pay firms for them. In the labor market, households provide labor and receive payment from firms through wages, salaries, and benefits.

16. Basic Economic questions
What to Produce: kind of goods and services people need or want (guns vs. butter)
How to Produce: kind of methods used in production of goods and services (labor-intensive vs. capital-intensive)
For Whom to Produce: kind of people benefiting from distribution of goods and services (rich, poor, or middle class)

17. Economic systems
Tradition: Customs and the way of life answering the basic questions
Command and Control: Government makes a plan to determine what, how and for whom to produce (i.e., Socialism)
Market Orientation: The market system based on interaction between buyers and sellers answer the basic questions (i.e., Capitalism)

18. Example of commend and control
Ancient Egypt was an example of a command economy

19. Nothing says “market” more than The New York Stock Exchange
Market orientation
Nothing says “market” more than The New York Stock Exchange

20. Benefits of Market Orientation Freedom to choose Freedom to compete
Capitalism & Freedom
Benefits of Market Orientation
Freedom to choose
Freedom to compete
Freedom to trade
Rule of law
Enforcement of contracts
Democracy
Creation of a large middle class

21. Capitalism & Freedom
Cargo ships are one mode of transportation for shipping goods in the global economy.