1. What is Economics? Social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their needs. Economics is about the “ordinary business of life” Economist Alfred Marshall CHAPTER 1: What is Economics?

2. Learning Objectives Unit 1
Describe the nature of human wants and how they are satisfied.
Identify and define the four factors of production.
Define the meanings of scarcity and opportunity cost.
Explain the key ideas in the economic way of thinking.
Explain what it means to think at the margin.
Describe the choices businesses face and a major goal of business.
Identify the basic economic decisions facing all societies.
Describe the two branches of economics.
Explain why private property, specialization, voluntary exchange, the price system, market competition, and entrepreneurship are considered the pillars of free enterprise.
Describe the nature of command, traditional, and mixed economic systems.
Explain the three kinds of models economists use.
Describe how the Circular Flow of Money, Resources, and Products explains the function of a free market economy.
Define money and explain its three functions.
Identify the goals of the U.S. economic system.

3. 3 basic economic questions:
What goods/services to produce?
How should goods/services be produced?
For WHOM will goods/services be produced?
2 Primary Wants:
Physical wants: necessary to maintain a healthy, safe life
food, clothing, housing
Psychological wants: are not necessary to human existence
Special car

4. Want-Satisfaction Chain
Human wants
Land, labor, capital
Go into production
Resulting in goods and services
Which go through distribution
Goods made available for consumption
Resulting in WANT-SATISFACTION

5. The Economic Way of Thinking
People Choose
All Choices Involve Costs
People Try to Make Good Choices
People Respond to Incentives
People Gain When They Trade Voluntarily
Our Choices Are Future Oriented
Our Choices Are Influenced By the Choices of Others

6. Factors of Production Land Labor
Capital: buildings, tools, and machines people create and use to produce final goods and services
Entrepreneurship

7. 1. People Choose Scarcity= Wants > Available resources
Scarcity is the Economic Problem

8. 2. All Choices Involve Costs
Opportunity cost: highest valued alternative given up as a result of making a choice
What you choose to spend $10 on.
Cost/Benefit thinking
Marginal Thinking: how much time to spend on one activity and how much time to spend on something else…thinking at the margin.
Marginal: the extra or additional costs or benefits of a decision

9. 3. People try to make good choices
We think “at the margin”
Incentives: positive reward that results from making a choice or behaving in a certain way
Higher wages, lower prices, a good grade
Disincentives: a negative or withdrawn reward
Fines or punishments
Economists try to predict how people respond to incentives and disincentives
4. People Respond to Incentives

10. 5. People Gain When They Trade Voluntarily
In a voluntary exchange between two people,
one person benefits more than another
both people believe that they are benefiting
cash is always exchanged
there is no benefit or cost to either person

11. A high school student buys dinner at a restaurant
A high school student buys dinner at a restaurant. The restaurant offers a special price which offers 20 percent off the regular price of dinner. In this exchange,
the restaurant benefits, student does not
the student benefits the restaurant does not
the student and the restaurant both believe they are benefiting
neither benefit
not enough information is given to know who benefits

12. 6. Our Choices Are Future Oriented
You cannot change a choice made in the past, but can make choices about the future; based on what has happened in the past.
Example: Housing Market
Examples: Actions of Congress, banks
7. Our Choices Are Influenced By the Choices of Others

13. Profit = Total Sales > Total Costs
Positive difference between total sales and total costs
Total sales MUST be greater than total costs
MARKET ECONOMY:
Capitalism or free enterprise?
Capitalism: means of production are privately owned and operated for profit
Free enterprise: the condition that allows people to freely make choices in their economic roles
Economy that relies on voluntary trade as the primary means of organizing and coordinating production.
Market: arrangement that allows buyers and sellers to make exchanges
Consumers weigh the costs and benefits of choices

14. Macro/MicroEconomics
Macro: study of the economy as a whole
BIG picture
How fast are prices rising?
Unemployment? Poverty?
Micro: study of the individual consumers and businesses
Individuals, families, and businesses.
What wages should we pay our employees?
Should we invest in new computers?

15. CHAPTER 2: Free Enterprise in the U.S.
Free enterprise: people in their economic roles are FREE to make CHOICES
6 PILLARS OF FREE ENTERPRISE:
Private Property
Specialization
Voluntary Exchange
The Price System
Market Competition
Entrepreneurship

16. PROPERTY: SPECIALIZATION:
Property: land = buildings = machines = tools = natural resources = clothing = appliances = musical instruments
Private Property:
Resources and products owned by individuals or businesses
Public Property:
Resources and products owned by government
SPECIALIZATION:
Process in which businesses and people focus on producing one or a few parts of an entire product\
Example: Gap vs. Apple, Starbucks: coffee, music

17. Voluntary Exchange: The Price System:
People must buy and sell products to acquire all things they want from the economy
Time!
Example: pencil pg. 18
The Price System:
Uses monetary prices as a message system to facilitate exchanges between buyers and sellers
When you buy something what is usually the first thing you look at?
Branding?
Prices = MAIN MESSENGER in a market economy

18. Market Competition: competition among businesses
1st form: competition in resource markets
Land, labor, and capital that businesses use to produce goods and services
Getting a great education!
Compete more effectively against other workers (sellers of labor) but businesses (buyers of labor) will compete more intensely to employ you = get a better job and earn a higher wage!
2nd form: competition in markets for products
All the goods and services consumers buy, from running shoes to haircuts
Rent, buying a house, concert tickets

19. Entrepreneurship: OVERALL:
Motivation that drives business leaders to compete and react to changing conditions in the market
OVERALL:
6 pillars = essential to the success of a market economy
T or F:
The government involvement in how the U.S. economy operates is limited.

20. The circular flow model:
Households: word economists use to describe living in the United States regardless of the type of house or apartment
2 important roles:
Members of households = consumers
Resource owners: they own their labor
Land, capital
The circular flow model:
Illustrates how voluntary exchange works
Helps us understand the flow of resources into businesses

21. Barter: exchange of goods and services without using money
Money: anything that is generally accepted as a payment for goods and services
Hamburgers instead of money?
Barter: exchange of goods and services without using money
Each person in the exchange wants what the other is offering
Pudding cup.
3 important functions of money:
A medium of exchange
A store of value
A measure of value

22. Medium of exchange: Store of value: SAVE Measure of value:
Instead of exchanging your labor for burgers, you can trade it for money.
When people AGREE on the value of money, it become a medium, a means of exchange.
Store of value: SAVE
Means that you can hold on to money to use it sometime in the future.
Does not become old or stale like a burger.
Measure of value:
In an exchange, each product or resource has a single money price
People can compare money prices to find the best value for what they are buying or selling
Compare values of good, services, and resources

23. 7 goals of the U.S. Economic System:
Full employment: almost all people in the labor force are able to find work
Economic growth: increase in output of goods and services
Price stability: prices of goods, services, and resources do not fluctuate significantly either up or down, in short periods of time.
Economic freedom: in choice of employment, buying, selling, use of our time, and other decisions related to our economy.

24. Economic security: means that the basic needs of every person should be met. This INCLUDES people who are unable to pay for their own way for whatever reason.
Economic equity: fairness and impartiality = offer ALL citizens equal economic opportunities
Economic efficiency: getting the maximum output from the resources used to produce goods and services.
Refers to the entire economy’s ability to get the most out of its limited resources.

25. Homework
1. STUDY, STUDY, STUDY!
2. Study guide sheet
3. Workbook pages