Introduction to Economics What do you think of when you think of economics?

Economics The study of how we make decisions in a world where resources are limited The reason we have is economics is because there is a central problem in the world that must be dealt with…

Key Problem of Economics Scarcity: this occurs when we do not have enough resources to produce all the things we would like to have Because of scarcity we have to make decisions because we can’t have everything &feature=relatedhttp:// &feature=related

Needs vs. Wants Needs: things we have to have –Food, water, shelter, clothing… Wants: things we would like to have –Entertainment, name-brand items… We have to take care of things we must have before we take care of our wants- we must make choices

Decision-making Not only do individuals have to make decisions, but society as a whole must make decisions too Society must answer three main questions

What to produce A society has to ask what to produce What should it focus on? What is most important? What does society need the most? Scarcity forces us to make those decisions.

How to produce Society must decide how to produce what we choose to produce Should we use this material or that material? What would be best for society as a whole? What is the most efficient way?

For whom to produce Society must decide who to produce the goods for Who receives the goods and services? This often depends on the type of government in different countries- in the U.S. it is often established by price and income

Economic Models Economists are people who study economics They study economies An economy of a nation includes all of the activity in a nation that affects production, distribution, and use of goods and services Economists study changes in economies and how to improve them

Economic Models For economists to study what might happen in the future, they collect data and create economic models Economic models are simplified representations of the real world that are used to explain how the economy works, or to predict what would happen if something changes They can be wrong

Trade-Offs Scarcity forces people to make choices about how they use their resources Economic decision making requires us to think about the costs (what we give up) and benefits (what we gain) of an action When you make a decision, you are deciding to do one thing rather than another- this is called a trade-off

Trade-Off Examples…

Trade-Offs Trade-offs involve turning down one or more choices to make another This happens for individuals and society as a whole When you choose to spend twenty dollars to purchase a new movie, the trade-off is the money you traded for that movie

Opportunity Cost In addition to making a trade-off, when you make a decision it also has opportunity cost A cost is something we give up An opportunity cost is the cost of the next best use of your time or money when you choose to do one thing rather than another

Opportunity Cost If you decide to pay for a ticket to an amusement park, for example, the trade- off is the money you pay for the ticket. The opportunity cost is what else you could have spent that money on and what else you could have done with your time rather than going to an amusement park.

Quick Tip Economics is full of words you have heard before- just like civics Use common sense If you come across a compound word that you do not recognize, then break it down and then put the pieces back together

Quick Tip Opportunity Cost: Opportunity: a chance to do something Cost: something you give up Opportunity cost: the chance to do something you give up when you make a decision

Measures of Cost You must examine costs when you make decisions There are many different types

Measures of Cost Fixed costs: these costs stay the same no matter how many units of a good are produced (or used) If you run a business, mortgage and property taxes are examples of two fixed costs- it doesn’t matter how much you are producing, those stay the same

Measures of Cost Variable Costs: these expenses change with the number of units produced (or used) If you run a business and start producing more, your electric bill and the cost of raw materials will increase- they vary

Measures of Cost Total Costs: if you add fixed costs to variable costs, you get total costs. This is the complete amount of costs.

Measures of Cost Marginal Costs: (Marginal means extra) Marginal cost is the extra, or additional, cost of producing one additional unit of output (or using an additional unit of it) This looks at whether or not it is worth it to produce more

Revenue Revenue is the amount of money coming in Marginal Revenue: it is the change in revenue that results from selling one more unit of output This helps answer whether or not it is worth it- if it is higher than the marginal cost, then yes.

Marginal Benefit Marginal benefit is the additional or extra benefit associated with an action A benefit is something good that comes out of an action

Cost-Benefit Analysis Once a person knows the marginal costs and benefits, then we can compare and contrast them Economists use an economic model known as a cost-benefit analysis A cost-benefit analysis compares the marginal costs and benefits of a decision

Cost-Benefit Analysis Rational decision making tells us to choose an action when the marginal benefits are greater than the costs If the costs are greater than the benefits, we should reject the option

The Economy An economy of a nation includes all of the economic activity that goes on in that nation- production, distribution, consumption, etc… America has a market economy- this is a system where supply, demand, and prices help people make decisions and the government plays a limited role (think of the free market concept)

The Economy A market economy is participatory Consumers and producers make choices Individuals play roles Individuals should try to be economically smart citizens- being informed is one of the best ways to accomplish this

The Economy A market economy is participatory Consumers and producers make choices Individuals play roles Government plays a limited role A market economy is often based on capitalism, which is a system where private citizens own most of the property and means of production and make their own decisions, with the government playing a very limited role

The Economy Market economies and capitalism are also often associated with free enterprise This is where businesses are allowed to compete for profit with a minimum of government interference- they are free to try to strike out on their own

Markets- where people buy and sell stuff Three key types (and lots in between) Command  Mixed  Market Economy Economy Economy

The economically smart citizen Should be informed- understand the economy, how it works, and what is going on currently Should understand incentives- incentives are rewards that are offered to persuade people to take certain actions but are not always the reason to choose to do something (buy one get one free sales) A deterrent is the opposite- it punishes you for doing something to try to prevent you from doing it (excise taxes)

The economically smart citizen Should understand the role of the government in the economy- in the American economy, the government interferes little, encourages competition, provides services that the private sector does not provide, and influences decisions by rewarding and punishing certain economic actions

The economically smart citizen Should strive to make wise choices Good decision making helps the individual and society as a whole When a person weighs a decision before making it and chooses to do something based on opportunity cost, then they have made the rational choice- choosing the alternative with the greatest value

Micro and Macro There are two basic types of economics: micro and macro Microeconomics look at the small picture- they examine decisions made by individuals and businesses Macroeconomics look at the big picture and deals with whole economies and decision-making at higher levels like in government

Basic Economics in Star Wars dZSdzymkhttps:// dZSdzymk