Economics

Consumers use goods and services. Producers depend on consumers to use their product and consumers depend on producers to make the goods/services they need and want. This dependency on each other for goods/services is called interdependence. The interdependence that exists between producers and consumers requires that each pay careful attention to the other. Producers must be aware of consumer likes and dislikes to know what to produce, how much of it to produce, and when to produce it. Consumers must understand the difficulties of production and provide good consumer feedback to the producer.

Think of it this way!!!!! Everything you do has an opportunity cost. TINSTAAFL What does this mean?

1. The best things in life are free. 2. The largest cost of going to college is tuition, room and board. 3. Anything worth doing is worth doing well. 4. The purpose of economic activity is to improve the well-being of some people at the expense of others Think about these statements Are they true or false

First, hardly anything is free. Resources are scarce and our wants are unlimited, so we constantly have to decide how to use those scarce resources. Things we think of as free, like spending time with our families or enjoying nature, have a cost. In order to do those things, we must give up something else. Economists use the term TINSTAAFL – an acronym for “There is No Such Thing as a Free Lunch.” This means everything in life has a cost. While things may appear to be free, everything has a cost. A good example is the free lunch program. In order for a student to get a free lunch, he or she must come to school. Coming to school is the cost of that free lunch. This statement also points out that economics is the study of human behavior, not merely traditional topics such as taxes, investments, or money. Statement 1

The second statement is also false. Students who attend college must give up the chance to work and earn money immediately following graduation from high school, and this cost is larger than tuition (room and board are irrelevant, since you must have a place to live and food to eat whether you go to college or to work). The cost of something is not always measured in direct outlays of money, but in opportunities sacrificed. Have students compare the opportunity cost for someone like LeBron James (professional basketball player who went straight from high school to the NBA) to what they might face when they graduate from high school. Statement 2

Statement 3 The third statement is also false. We are often told this is true, but economists point out that time is a resource that is limited and that we must make choices. We just don’t have enough time to do everything well.

The fourth statement is false as well. This is a common misconception of economic concepts. When people trade with each other, they both anticipate being better off after making a voluntary trade. Trade is a win-win proposition. Statement 4

In other words, opportunity cost is a trade off Every purchase is a trade-off. Maybe it’s more obvious with discretionary expenses, such as books and gym memberships and cable television. But you’re making trade-offs even when you buy the things you need. When you buy food for your family, you’re giving up other things you might really want, like new furniture or a car repair. And if you choose to go into debt, you’re trading your future income in order to have the things you want today.

When more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs, economies of scale are said to be achieved. Economies of Scale In a simple example explaining the principal, where a manufacturing company saves money as it produces higher quantities of its product, as in all business areas, 'the more you buy, the more you save' An example is that of a private soft drinks manufacturer. The more orders that the manufacturer receives, the more savings it makes, as it will in turn get cheaper prices for the materials it needs to produce its drinks as it will be buying them in larger quantities and receiving discounts, the manufacturing company in turn would give its customers cheaper prices for the more orders for drinks they make for this very reason, as they will gain the discounts, they can pass a saving onto their customers, making themselves stronger, a more respected company from its suppliers as it is buying in higher volumes and its turnover becomes higher.

1. Oh Scarcity! (Tune: Oh, Christmas Tree ) Oh, Scarcity! Oh, Scarcity! We can’t have all the things we want. Oh, Scarcity! Oh, Scarcity! We cannot have it all. We really want a lot of stuff. But sometimes there’s just not enough. Oh, Scarcity! Oh, Scarcity! We cannot have it all.

2. We Are Workers (Tune: Are You Sleeping ) We are workers, We are workers, Yes we are! Yes we are! Brian is a baker. Brian is a baker. He makes bread. He makes bread. We are workers, We are workers, Yes we are! Yes we are! Sarah is a fire fighter. Sarah is a fire fighter. She puts out fires. She puts out fires.

3. Oh Give Me a Choice (Tune: Home on the Range ) Oh give me a choice, Oh, a difficult choice, And I’ll think about what I could use. I’ll have to decide, With my eyes open wide, What I’ll give up and what I will choose. Opportunity cost! It’s the thing you give up when you choose. It’s the price that is paid When a choice must be made. It’s the thing that I surely will lose.

4. The Money Goes ‘Round (Tune: Here We Go ‘Round the Mulberry Bush) Verse 1: The businesses pay the people who work, The people who work, The people who work. The businesses pay the people who work, The money goes ‘round and ‘round. Chorus: The money goes ‘round and ‘round and ‘round. The money goes ‘round and ‘round and ‘round. The money goes ‘round and ‘round and ‘round. The money goes ‘round and ‘round. Verse 2: The people buy the businesses’ goods, The businesses’ goods, The businesses’ goods. The people buy the businesses’ goods, The money goes ‘round and ‘round. (Repeat chorus)

5. Questions (Tune: Oh Where, Oh Where Has My Little Dog Gone ) Oh what, oh what will our country produce? Oh what, oh what will it make? With its natural and capital and human resources, Oh what, oh what will it make? Oh how, oh how will our country produce? Oh how, oh how will it work? With its natural and capital and human resources, Oh how, oh how will it work? For whom, for whom will our country produce? For whom, for whom will it work? With its natural and capital and human resources, For whom, for whom will it work?

6. The Baker Wants a Pair of Shoes (Tune: Old MacDonald ) The baker wants a pair of shoes, E-I-E-I-O! The baker wants the shoe clerk’s help, E-I-E-I-O! With a shoe clerk here, and a shoe clerk there, Here a clerk, there a clerk, Everywhere a clerk, clerk. The baker wants the shoe clerk’s help, E-I-E-I-O! The shoe clerk wants some food to eat, E-I-E-I-O! The shoe clerk wants the grocer’s help, E-I-E-I-O! With a grocer here, and a grocer there, Here a grocer, there a grocer, Everywhere a grocer, grocer. The shoe clerk wants the grocer’s help, E-I-E-I-O! The grocer has a little dog, E-I-E-I-O! The grocer wants the vet to help, E-I-E-I-O! With a vet, vet here, and a vet, vet there, Here a vet, there a vet, Everywhere a vet, vet. The grocer wants the vet to help, E-I-E-I-O!

7. Buying and Selling (Tune: Row, Row, Row, Your Boat ) Goods, goods, goods are things That we make and use. We’re buying and selling And buying and selling Any goods we choose. Services are things we do That other people use. We’re buying and selling And buying and selling Services that we choose. 8. Spending and Saving (Tune: On Top of Old Smoky ) Keep spending your money; get something this way. The value is small but you’ll have it today! Start saving your money; get something this way. The value is great and you’ll get it some day!

12. Consumers (Tune: The Bear Went Over the Mountain ) Consumers go to the market, consumers go to the market, Consumers go to the market, to see what they can buy. And all that they can buy, and all that they can buy, Are lots of goods and services, lots of goods and services, Lots of goods and services, that’s all that they can buy.

We’ve been working on production, All the livelong day. We’ve been working on production, Just to make some goods this way. We use natural resources, Such as land, and oil, and trees. We use capital resources, Such as tools and factories. Now we will work! Now we will work! When we use our human resource. Now we will work! Now we will work! We use our human resource. 14. We’ve Been Working on Production (Tune: I’ve Been Working on the Railroad )

The Circular Flow of Economic Activity

Transactions: The Circular-Flow Diagram Trade takes the form of barter when people directly exchange goods or services that they have for goods or services that they want. The circular-flow diagram is a model that represents the transactions in an economy by flows around a circle.

The Circular-Flow Diagram

Circular-Flow of Economic Activities A household is a person or a group of people that share their income. A firm is an organization that produces goods and services for sale. Firms sell goods and services that they produce to households in markets for goods and services. Firms buy the resources they need to produce— factors of production—in factor markets.

The Circular Flow Goods Other countries Financial markets Government Firms (production) Household Taxes Factor services Savings Imports Government Spending Wages, rents, interest, profits Exports Investment Personal consumption McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Growth in the U.S. Economy from 1962…

…to 1988

Consumers Consumers play 3 roles in the economy –Consumer -- user of goods and services. Free to choose. Can spend now for immediate wants or save for future consumption. –Worker -- producer of goods and services. Earner of income. –Citizen -- join with others to make group decisions. Influence laws, pay taxes, vote. Determine use of public goods and services.

Business and Industry Provide goods and services in return for profit. 4 components –production –processing –distribution –services

Government Provides legal framework for economic activity. Also is a producer and consumer as well as an economic force. Can use its economic power to accomplish socially desirable goals.

International Trade Provides better, different, or cheaper goods and services and the resources we need to produce.

The Circular Flow The circular flow follows two paths through the economy -- money and goods and services. It shows the interaction between the 4 parts of the economy -- consumers, businesses, government, and international trade.

Flow of Goods and Services Individuals provide the factors of production (land, labor, capital, management). Businesses use the factors to produce goods and services.

The Money Flow Businesses pay for the factors of production. Individuals buy the goods and services.

By adding the government, you get two new circles. One shows interaction between the government and consumers.

The second shows the interaction between the government and businesses.

Putting those together gives you the two inner circles.

Next we put consumers, businesses and the government together.

International Trade The last part of the flow chart involves money and goods and services flowing into and out of the country via imports and exports.