Intro to EconomicsIntro to Economics

Initial Questions…Initial Questions…• SCARCITY….• List 10 items in your life that are

scarce.

• Where does your money come from?

• How does where it comes from impact what you do with it?

Four Laws of ScarcityFour Laws of Scarcity• 1) In order for something to be scarce,

people must first want it.• 2) In order for something to be scarce, some

people who want it must be unable to get it.• 3) What is scarce is different at different

times and in different places.• 4) Scarcity also involves choosing among a

variety of uses for a particular resource.

Defining EconomicsDefining Economics• Economics:

– the study of human efforts to satisfy what appears to be unlimited and competing wants through the use of scarce resources.

(The science of decision making)

Opportunity CostOpportunity Cost• The cost of the next best alternative The cost of the next best alternative

use of money, time, or resources when use of money, time, or resources when one choice is made rather than one choice is made rather than another.another.

• Opportunity costs are not the same for everyone.

• There is no such thing as a free lunch!

What you must know as we What you must know as we move forward!!!move forward!!!

• Rational Self-Interest: Given circumstances and preferences, people weigh the costs and benefits of choices in order to do the best they can for themselves.

• Private Choices Vs. Public Choice: Markets & private goods vs. what YOU want the government to do.

• Positive vs. normative economics: How it IS vs. how is SHOULD be.

Fundamental Economic Fundamental Economic Problem…Problem…

• Need- basic requirement for survival (food)

• Want- means of expressing a need (Choosing Domino’s Pizza)

NeedsNeeds• Physical needs are things that are

necessary for life– Ex. food, clothing and shelter

• Collective needs are the things groups of people need.– Ex. water and sewer systems and fire and

police protection

• Satisfying collective needs improves people’s quality of life… Remember SimCity?

WantsWants• Psychological wants: When people want

things that will make them happy or give them greater comfort of body and mind, we call these wants.

• What people want depends on when and where they live.

Four Factors of Four Factors of ProductionProduction

• Land- All resources found in nature– Ex. deserts, fields, cattle.

• Labor- People with all their efforts and abilities excluding entrepreneurs that contribute to the production of goods and services.– Ex. factory worker

• Capital- The tools equipment and factories used in the production of goods and services.– Ex. Bulldozer, School

• Entrepreneurial Ability- Special Talent to innovate and take advantage of business opportunities.– Ex. Manager at McDonald’s

ResourcesResources• Resources are what people use to

make the things that satisfy their needs and wants

• The three kinds of resources are 1) Natural resources2) People made resources3) Human resources

The Three Kinds of The Three Kinds of ResourcesResources

• Natural resources include air, water, land plants, animals, minerals and other raw materials. They are also known as land resources

• People-made resources include tools, factories, machinery and even computers. They are also know as capital resources or capital goods

• Human resources include the work that people can do, their energy, their ideas, their training and their skills also called labor resources

Fallacy of CompositionFallacy of Composition• What is true for the individual may not

be true for the whole.

The Two Branches of The Two Branches of EconomicsEconomics

• Micro-Micro- examines choices of individuals concerning one product, firm or industry.– Ex. How one person deals with gas prices.

• MacroMacro-examines behavior of whole economy at once.– Ex. How the Government deals with higher gas

prices.– Trade, Unemployment.

Three Basic QuestionsThree Basic Questions• What to Produce?

• How to Produce?

• For whom to Produce?

Economic SystemsEconomic Systems• Method used by a society to produce

and distribute goods.

• MarketMarket Economy- Economy- decisions are made by free markets (capitalism)

• Command Economy- Command Economy- government is in command of the economy and decides how to answer the three questions.

(communist)

• Mixed Economy- Mixed Economy- Market Systems with limited Government Intervention.

• Traditional Economy- ional Economy- relies on custom or ritual to answer the three questions.