1. What is Economics?
Chapter 1

2. Scarcity and the Science of Economics
Section 1
Scarcity and the Science of Economics

3. Basic Economics
Economics is very important to your understanding of society and how our economy effects you
Economics is 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 (study of needs vs. wants)

4. Scarcity
People want what they don’t have? Most people are not satisfied with what they have
Scarcity – The condition that results from society not having enough resources to produce all the things people would like to have.

5. “There is no such thing as a free lunch”
Want vs. Need
People confuse Wants and Needs all the time
Needs- A basic requirement for survival
(food, Clothing, Water, Shelter)
Wants- A way of expressing a need. Not necessarily what we always need but what we desire.
“There is no such thing as a free lunch”
(TINSTAAFL)

6. 3 Basic Questions of Scarcity
What to Produce?
How to Produce?
For Whom to Produce?

7. Production
With every item we produce we must figure in the factors of production.
Land- “gifts of nature” or natural resources
Capital (capital goods)- the tools, equipment, machinery, and factories used in the production of goods
Labor- people and all of their efforts, abilities, and skills
Entrepreneurs- risk takers in society who do new things with existing items in our economy.

8. Production
Production takes place when all factors of production are present

9. Scope of Economics
In society we must be able to control our behaviors and carefully utilize the scarce resources we have.
There are 4 key elements we must utilize in order to do this
Description – (GDP) Gross Domestic Product- the $ value of all final goods and services (this is the most comprehensive measure of a country’s total output and is key in the overall economic health of a nation
Analysis- Allows us to understand the who, what, why, and when of production
Explanation- Where economists explain why things happened the way they did.
Prediction- After looking at all other factors this allows us to see the good and bad decisions we made and how they effected production.

10. Basic Economic Concepts
Section 2
Basic Economic Concepts

11. Goods, Services, and Consumers
A good is an item that is economically useful or satisfies an economic want (book, car, computer, etc.)
Consumer Goods- Intended for final use by individuals
Capital Goods- When manufactured goods are used to produce other goods and services.
Durable Goods- Any good that lasts more than 3 years.

12. Goods, Services, and Consumers
Services are basically a work that someone performs for someone.
A service is similar to a good but the main difference is that it is intangible meaning it cannot be touched

13. Goods, Services, and Consumers
Consumers are basically the people who buy and/or use the goods

14. Value, Utility, and Wealth
Value = Worth in dollars and cents
Utility- capacity to be useful and provide satisfaction
For something to have value it must be scarce and have utility.
When you talk about value you have to see what makes items have value.
Scarcity-how rare is it?
Utility- how useful is it?

15. Value, Utility, and Wealth
Wealth – The accumulation of products that are tangible, scarce, useful, and transferrable from one person to another
Adam Smith authored the book “The Wealth of Nations” in 1776
He believe by getting a nation’s people to specialize in skills it would increase productivity and therefore make a nation more wealthy.

16. Circular Flow Market

17. Circular Flow Market
Factor Markets are where productive resources are bought and sold
Product Market are where producers sell their goods and services.
Markets serve as the main link between the individuals and businesses

18. Productivity and Economic Growth
When a country is healthy it contains economic growth or basically an increase of total output of goods and services.
If you have and increase in productivity it benefits both the consumer and the producer

19. Specialization
According to Adam Smith Specialization is the key to a productive society.
When you have specialization of labor workers do fewer jobs and instead specialize in certain jobs in order to get better at those jobs
This can include labor and capital

20. Invisible hand The invisible hand is described by Adam Smith
Adam Smith says that a true free market economy is run by an invisible hand or where the government does not interfere but only assists the people as needed.

21. Economic Choices and Decision Making
Chapter 1
Section 3
Economic Choices and Decision Making

22. Economic Factors
What types of events can lead to changes in the economy?
War is one because it reduces the amount of people available for labor.
Inflation – prices rise while wages remain constant or drop
Natural Disasters- Weather etc.

23. Trade Offs and Opportunity Cost
In our society people are given many choices this is known in economics as Trade-offs
With choices come options and this is what leads to economic success or failure in many different factors including standard of living or (quality of life)
This is where opportunity cost comes into play.
Opportunity cost is the cost of the next best alternative use of money, time, or resources.
Example / paying $500 for 2 television you think it is the same but which one is the most valuable

24. Production Possibilities
You have to look at the production frontier possibilities diagram to gain the concept of opportunity cost
In this diagram economists look at the following factors:
Possible alternatives
Fully employed resources
Opportunity cost
The cost of idle resources
Economic Growth

25. Thinking like an Economist
In order to be successful economically you must condition yourself to think like an economist
In order to do this you must look at the following items when making economic decisions:
Build simple models
Employ a cost-benefit analysis of items
Take, small, incremental steps
Financial Capital or (money) is
a generally a result of this type
of thinking

26. Economics in the World
When events happen in 1 part of the world effect other parts of the world it is known as Economic Interdependence.
One form of capital utilized world wide is known as human capital
Human capital provides the following effects in an economy:
Allows businesses to invest in people
Allows businesses to invest in healthcare for employees
Allows businesses to invest in specific job training for employees