basic economic concepts economics has its own vocabulary. fortunately, most economic terms are...
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Basic Economic ConceptsBasic Economic Concepts
Economics has its own vocabulary. Fortunately, most economic terms are
widely used and will already be familiar.
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I. Needs and WantsI. Needs and Wants
• A need is a basic requirement for survival.
• A want is a means of expressing a need.
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II. ProductsII. Products
• A. Free Products are so plentiful no price can be attached (sunshine or air).
• B. Economic Products are goods and services that are useful, relatively scarce, and transferable to others.
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B. Economic ProductsB. Economic Products
• 1. Goods – a tangible commodity– Consumer Goods – to
be used by individuals.– Capital Goods – a good
used to produce another good.
– Durable Goods - last three years or more.
– Nondurable Goods – last less than three years.
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B. Economic ProductsB. Economic Products
• 2. Services – work performed for someone.
• This includes work that doctors, lawyers, and teachers perform.
• The difference between a good and service is that a service cannot be touched or felt.
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III. ConsumersIII. Consumers
• Consumers are People who use goods and services to satisfy wants and needs.
• A. Consumption is the process of using up goods and services to satisfy wants and needs.
• B. Conspicuous Consumption is the use of a good or service to impress others.
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IV. Value, Wealth, UtilityIV. Value, Wealth, Utility
• Value is something that has worth that can be expressed in dollars and cents.
• Value is determined by the price someone would pay for something.
• Why do some things have more value than others?
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A. Paradox of ValueA. Paradox of Value
• Some things are essential to life, such as water, yet have little monetary value.
• Other things, such as diamonds, are not essential but have a much higher value.
• This is known as the paradox of value.
• The paradox of value is due to scarcity. In order for something to have value, it has to be somewhat scarce.
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B. UtilityB. Utility
• For something to have value, it must also have utility.
• Utility is the capacity to be useful to someone.
• This is not measurable and can be different from one person to the next.
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C. WealthC. Wealth
• Another concept is wealth.
• Wealth is the sum of economic products that are tangible, scarce, useful, and transferable from one person to another.
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Economic Economic InterdependenceInterdependence
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MarketsMarkets
• A Market is a location or economic mechanism that allows buyers and sellers to deal readily in a certain economic product.
• This could be local, regional, national, or global.
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MarketsMarkets
• Factor Markets are where productive resources are bought and sold.
• Entrepreneurs hire labor for wages and buy scarce resources.
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MarketsMarkets
• Product Markets are where producers offer goods and services for sale.
• This is where individuals spend the income they receive on goods and services.
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Economic Economic InterdependenceInterdependence
• All markets have a distinct circular flow. This shows economic interdependence.
• Economic Interdependence means that actions in one part of the country or world have an economic impact on what happens elsewhere.
• This is shown in the circular flow of economic activity diagram.
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Circular FlowCircular Flow