Economics: An Introduction.

 Economics is the study of MONEY…  The study of CHOICES…  And the study of how individuals and nations use scarce resources to satisfy their needs and wants.

 This is Allen Iverson.  He was drafted by the Philadelphia 76’ers in  He earned $154,954,445 over the course of his career.  He is now broke.  Your future prosperity does not depend on your INCOME.  It depends on your ability to make GOOD DECISIONS.  That is the point of this class.

 All of economics rests on this principle….  Incentive: the hope for a reward or the fear of a punishment.  There are TWO types of incentives…  Positive incentives…  And negative incentives.  A positive incentive is a REWARD…  And a negative incentive is a PUNISHMENT.

 A. Resources are limited, but human desires are UNLIMITED…  B. This is called SCARCITY…  C. Scarcity ALWAYS exists.  D. Because of scarcity, EVERYTHING you do has a cost…  E. Even if that action seems to be “free”…  What might be a “cost” of taking a walk in the park?

Which of the following is an example of Scarcity? A.) Not having enough money to buy a new car. B.) Not having enough time to study for a test. C.) Not having enough jelly for a PB and J.

The Concept of “Free” in Politics ► Politicians often talk about FREE stuff: ► Free healthcare… ► Free education… ► Free housing for the poor… ► But these things are NEVER free… ► Scarce resources are required to produce them… ► The labor and resources used to produce schools could be used to build hospitals… ► The tax dollars required to fund free health care could be used to fund the military…or build new bridges… ► EVERYTHING HAS A COST.

 Because of scarcity, everybody is forced to make trade- offs…The sacrifice of one thing in order to have another.  The cost of the trade-off is called the opportunity cost—The value of the SECOND BEST option you did not take.  This Sunday you might choose between…church, sleep, watching football, doing homework, working…  You can’t do everything, so you have to make a choice.  All opportunity costs are NOT EQUAL.

Phil has $100. He can buy either a pair of shoes or a new cell phone. Phil chooses the cell phone. What is his opportunity cost? A.) The $100 he spent B.) The cell phone C.) The shoes

Why Are You Here? You could be working RIGHT NOW!!! You could be working RIGHT NOW!!! But right now, you are making NO MONEY AT ALL!!! But right now, you are making NO MONEY AT ALL!!! Minimum wage is now $7.25…but you might even get a job—RIGHT NOW—for more than that!!! Minimum wage is now $7.25…but you might even get a job—RIGHT NOW—for more than that!!! Let’s say, $10 an hour… Let’s say, $10 an hour… $10 an hour, 8 hours per day, $80 bucks a day, $400 bucks a week… $10 an hour, 8 hours per day, $80 bucks a day, $400 bucks a week… This semester lasts for 18 weeks… This semester lasts for 18 weeks… What is your opportunity cost for choosing to stay in school? What is your opportunity cost for choosing to stay in school?

$7,200

 High school dropouts earn, on average, $910,000 in their lifetime…  Graduates earn $1.2 million…  So, the opportunity cost of dropping out is $290,000.  And those with four-year degrees earn $2.1 million…  So the opportunity cost of not going to college is $900,000.  Those with master’s degrees earn $2.5 million…  And those with professional degrees earn $4.4 million.

 Is a decision-making process wherein people make choices that HOPEFULLY result in benefits that are EQUAL TO or GREATER THAN their costs.  The Marginal Cost ( Consequence) of staying in school is $7200.  The Marginal Benefit (Reward) is a much higher level of earning power throughout the rest of your life.

Factors of Production—the resources that are used to make all goods and services. There are three: 1. Land—natural resources used to produce goods and services (coal, water, lumber)… 2. Labor—the effort a person devotes to a task… 3. Capital—any human made resource that is used to produce other goods and services. There are two types of capital: …Physical Capital, and… …Human Capital.

 Physical Capital— Human-made objects that are used to create other goods and services…  Such as—tools, factories…what else?  Human Capital—the knowledge and skills a worker gains through education and experience.  The economy must have both types of capital to grow.

Which of the following is an example of physical capital? A.) A box of nails. B.) A gallon of gas. C.) An oven used to cook pizza. D.) A worker on an assembly line.

Dr. Doolittle spends $10,000 for his assistant to become certified on new medical technology equipment. Which of the productive resources is Dr. Doolittle investing in? A.) Land B.) Labor C.) Capital D.) Entrepreneurship

 Entrepreneurs— ambitious leaders who combine land, labor and capital to create and market new goods and services.  They develop new ideas, start businesses, create new industries and are critical for economic growth to occur.

1. A medium of exchange—the “barter system” is inefficient. 2. A unit of account— value is measured in terms of money. 3. A store of value—it can be saved for months or years and then retrieved.