Fundamentals of Fundamentals of EconomicsEconomics

I want it, and I want it I want it, and I want it NOW!!!NOW!!!

k

Do Now:Do Now:

Without wealth, Without wealth, money is money is meaningless. meaningless.

Agree or disagree.Agree or disagree.

What it’s really about:What it’s really about:

Establish your priorities, Establish your priorities,

decide what you want, decide what you want,

determine what you determine what you will will exchange for that,exchange for that,

and go to work.and go to work.

More than anything else, More than anything else, economicseconomics has a part in has a part in everything you do. everything you do. EverythingEverything!!

How? How? We are always We are always deciding things based deciding things based on what we want.on what we want.

ThereforeTherefore……

The two foundational The two foundational ideas of economics:ideas of economics:

2. We are 2. We are making making choiceschoices based on those based on those values.values.

1. We are always 1. We are always assigning assigning valuevalue to to things.things.

Remember these?…Remember these?…They’re each the same thing to all

people…

But each person values each one DIFFERENTLY!!!

What is Economics, then?What is Economics, then?

It is:It is:

Looking to have and to Looking to have and to use stuff in order to use stuff in order to make life better.make life better.

I’d be a little better off with a few nice, new bandages, thank you!

Can each of us have Can each of us have anything anything and and everythingeverything we want?we want?

Why can’t we?Why can’t we?

Easy: Easy:

There’s not There’s not enoughenough of the of the stuff we stuff we wantwant to go around! to go around!

““Waaaaaaaa!Waaaaaaaa!””

What?! We What?! We can’tcan’t?!!?!!

This is the first major This is the first major principle of principle of economics:economics:

ScarcityScarcity

What is this?What is this?

Stuff we like to have Stuff we like to have is is limitedlimited..

ScarcityScarcity

This also involves This also involves resourcesresources being being scarcescarce..

Resources are stuff used Resources are stuff used to make thingsto make things. . So So then…then…

We must decide We must decide WHAT resources to WHAT resources to use for WHAT things.use for WHAT things.

Hmm…

Economics, then, could be Economics, then, could be defined simply as…defined simply as…

UnlimiteUnlimitedd wants wants

LimitedLimited resourcesresourcesversu

s

Get ready ‘cuz I’m gonna limit your resources,

pal!

But I still want it!!!

So then, really, when So then, really, when you think about it…you think about it…

All that Economics All that Economics

is, really, is theis, really, is the science of science of decision-decision-making.making.Everything has Everything has somesome alternate alternate use!use!

Some things about Some things about scarcityscarcity

Don’t forget! Don’t forget! Scarcity is simply Scarcity is simply that we don’t that we don’t have enough have enough stuff to have for stuff to have for all the uses we’d all the uses we’d like to have stuff like to have stuff for!for!

Oh, I see. It’s all about

how we make a choice!

Some things about Some things about scarcityscarcity

Scarcity is not the Scarcity is not the same as same as rarityrarity: : there are there are probably a trillion probably a trillion pencils out there, pencils out there, but they’re still but they’re still scarce! Why?scarce! Why?

Some things about Some things about scarcityscarcity

Scarcity is not the Scarcity is not the same as same as shortageshortage: : A shortage is when A shortage is when there is notably there is notably less supply for less supply for effective demand. effective demand. Demand still may Demand still may be met, but be met, but scarcity is still in scarcity is still in effect. Why?effect. Why?

Oh my, we’re

running low on pencils!

Once again…Once again…

Scarcity is simply Scarcity is simply that the things we that the things we want want are limited.are limited.

But I still want it!!!

Making stuff we wantMaking stuff we want

The creation of useful The creation of useful things is called things is called productionproduction..

In this process, we are In this process, we are hoping to have hoping to have wealthwealth. . This is stuff that has value This is stuff that has value to a large number of to a large number of people at a particular people at a particular time.time.

A key definitionA key definition

We expect that the products We expect that the products we use will have some we use will have some usefulness. How usefulness. How muchmuch usefulness is a measure of their usefulness is a measure of their _____._____.

What? What do you think What? What do you think the word is? the word is?

The term is The term is utility.utility.

Products make up Products make up a nation’s a nation’s wealth…wealth…

This means that the most significant factor in an increase in a nation’s wealth is it’s use of _________.

technology

Think about it…Think about it…

Which of these would be more associated with wealth?

Why?

or

Let’s get this out of the Let’s get this out of the way right now…way right now…

Money and wealth are Money and wealth are

notnot the same thing! the same thing!

How’s How’s thatthat?…?…

Good StuffGood Stuff

Produced things, or pProduced things, or productsroducts, are , are also known as galso known as goodsoods and and servicesservices..

They are classified as such because They are classified as such because they can be they can be boubougght and soldht and sold..

A good or a service is something people A good or a service is something people want want somesome of rather than of rather than nonenone of. of.

How do we know they want it?

Not so fast! We’ll get to that later!

Another key definitionAnother key definition

Who is the individual who goes Who is the individual who goes out of his or her way to out of his or her way to makemake those products (again, things to those products (again, things to make our lives better make our lives better )? He/she )? He/she is the one who assumes the is the one who assumes the riskrisk if if the product doesn’t sell.the product doesn’t sell.

He/she is an He/she is an entrepreneurentrepreneur. .

What is a good?What is a good?

It is a material item.It is a material item.Examples: a car, a candy bar, a Examples: a car, a candy bar, a stereo, a house, a stick of celery, stereo, a house, a stick of celery, some floor tile, a notebook, the bottle some floor tile, a notebook, the bottle of Super-Shine Magma-Sheenof Super-Shine Magma-Sheen™ that ™ that makes Nick’s hair so schnazzy. makes Nick’s hair so schnazzy.

It is some physical, tangible thing.It is some physical, tangible thing.(& remember: people want to buy (& remember: people want to buy it…)it…)

What is a service?What is a service?It is a non-material item.It is a non-material item.

Examples: legal representation, Examples: legal representation, plumbing work, hairstyling, acting, plumbing work, hairstyling, acting, that groovy dance step that Robert that groovy dance step that Robert does out on the floor—yowwie!—for does out on the floor—yowwie!—for which girls give him the big bucks.which girls give him the big bucks.

It is an activity a person does.It is an activity a person does.

The key is that he or she gThe key is that he or she gets paid ets paid for itfor it, because it only counts , because it only counts if it is if it is boubougghtht..

How well they are How well they are bought and sold…bought and sold…

This determines the This determines the (cha-CHING!)(cha-CHING!)

economic health of the economic health of the country.country.

Why do we engage in Why do we engage in voluntarvoluntaryy exchan exchanggeses??

Both parties will be better Both parties will be better off!off!

Both Both are are winnerswinners!!

Again: Again: BothBoth are winners! are winners!

Even though there is Even though there is some some trade-offtrade-off..

I now have

some milk where I didn’t

have any before!

And I have some toilet paper

where I didn’t

have any before!

BothBoth are winners! are winners!

Ruff ruff!Ruff ruff!

Get ridGet rid of the of the ideaidea that,that, with with healthy economic healthy economic activity,activity,

someone wins someone wins while another while another loses! loses!

Rover says…

RemembRemember this er this guy?guy?

What do What do othersothers think think

about his about his newly found newly found

fortune?fortune?

Again, if Again, if thisthis is going real is going real good…good…

Again, if Again, if thisthis is going real is going real good…good…

Then the whole nation’s economy is going real good!

Yay!

Voluntary exchangeVoluntary exchange

Key principle is that of Key principle is that of sanctity of sanctity of contractcontract. What is this about?. What is this about?

It is that we expect one another to It is that we expect one another to do what is right when we buy do what is right when we buy and sell. We shouldn’t have to and sell. We shouldn’t have to write it all out officially!write it all out officially!

Another key principle is that of Another key principle is that of private propertyprivate property. What is this . What is this about?about?

Voluntary exchangeVoluntary exchangePrivate property is the idea that each of Private property is the idea that each of

us has a right to make just claims to us has a right to make just claims to stuff, and then to do what we think is stuff, and then to do what we think is best with it to make life better.best with it to make life better.

I see you have not been introduced to the greatest voluntary exchange of them all! I give you vast fame, fortune, and power, and all you have to give to me is one tiny little insignificant little item of yours…

Price? Cost? Aren’t they the Price? Cost? Aren’t they the same?same?

What is the difference between What is the difference between priceprice and and costcost??

PricePrice: Assigned value : Assigned value in monetary terms.in monetary terms.

CostCost: What you give : What you give up to get something.up to get something.

Remember that stuff Remember that stuff

about about trade-offstrade-offs??

That has to do with That has to do with opportunity cost.opportunity cost. This means thatThis means that in order to in order to have something, have something, you must you must give up something else give up something else you like so you can have you like so you can have it.it. ((You’re making a trade-off.)You’re making a trade-off.)

Opportunity CostOpportunity Cost

The value of the The value of the next best alternativenext best alternative when you decide to when you decide to get or do something.get or do something.

More Opportunity CostMore Opportunity CostSo here it is again in another way…So here it is again in another way…

PricePrice: The value of an : The value of an opportunity in real opportunity in real terms.terms.

CostCost: A foregone : A foregone opportunity.opportunity.

Opportunity CostOpportunity Cost

Once again, economics is the Once again, economics is the science of decision-making…science of decision-making…

There’s alwaysThere’s always something else something else I I can do with something I value! can do with something I value! AlwaysAlways!!

I like my brain! Let’s see, I can

put learning and knowledge and smartness in it,

or…

I can do something else,

like put drugs and alcohol and bullets in it!

Ouch!

X-Ray of typical human X-Ray of typical human brainbrain

X-Ray of Homer Simpson’s X-Ray of Homer Simpson’s brainbrain