economics is… definition the study of how people seek to satisfy their needs and wants by making...
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Economics
Is… Definition
The study of how people seek to satisfy their needs and wants by making choices
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Needs
Food Water Shelter Air Love Clothing Transportation Health Care Education
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Wants
Car Job Technology Bigger Better Brighter Newer
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Scarcity
Limited quantities of a resource to meet unlimited wants and needs
WE MUST CHOOSE
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Choices
Child Adolescent Adult Rich Poor
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Allocation
To set aside resources for a specific function Macro Micro
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Opportunity Cost/Benefit
The most desirable alternative given up as the result of a decision
The desired gain of making a decision
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Opportunity Cost/Benefit
Benefit Cost
New Shoes
Speeding
Fast food
Sports
Part-time job
Lease a car
College Ed.
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Thinking at the Margin
Deciding whether to do or use one more unit of some resource
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Production Possibility Frontier
A
B
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Efficiency
Using resources to maximize the production of goods and services
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Underutilization
Using fewer resources than an economy is capable of using
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Vacation Destination
You will now participate in a “real life” decision-making simulation. Pretend you have saved $1000 for a Spring Break fling with your friends. Use your best allocation of your resources to get the most “bang for the buck.” Shop with 5 different travel agencies to create the best package. Think at the Margin.
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Scarcity
Definition Micro Macro
VacationDestinationSimulation
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Trade-off
An alternative sacrificed when a decision is made Your family The USA
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Specialization
The concentration of the productive efforts on a limited number of activities Your family The USA
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Key Economic Questions
All societies must answer… What to produce? How to produce? For whom to produce?
“Poop to Profits”
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Economic Systems
Free Market – prices, distribution, wages, unhindered by government control
Free Enterprise (USA) Socialist (China) Command – production and
investment are regulated by central authority
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Reflections
Reflect on who makes the decisions about the use of resources, like how much crude oil will be converted to gasoline to be used in your car.
How could a Free Market encourage people to use more renewable sources of energy?
How would a Command Economy get people to convert to renewable sources?
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US Free Enterprise
The US free enterprise system emphasizes the economic goals: Efficiency Freedom Innovation
Consumer sovereignty dictates: Prices Quantities Quality
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Self-interest
One’s own personal gain
GREED IS GOOD
Best classes, best assignment Motivates you to learn on your own
Try something new Work hard
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Incentive
An expectation that encourages people to behave a certain way School rules Laws Taxes Sales Advertising
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Competition
The struggle among producers for the dollars of consumers
Rational Ignorance Incentive make sense We don’t know, or choose not to care
Advertising Activity
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Market
Arrangement that allows buyers and sellers to exchange things Factor Market Product Market
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Production
Factors Land Labor Capital Entrepreneurship
Payments Rent Wages Interest Profits
- Combining factor resources to create final goods and services.
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Consumption
Determinants Income Attitude Substitute Complement
Price Sales Used instead of Used together
- Use of final goods and services
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Circular Flow Model
Firms Households
Factors:L,L,C
Payments:R,W,I
Goods & Services
PricesProduct Market
Factor Market