Fundamentals of Economics I want it, and I want it NOW!!! k

Do Now: Without wealth, money is meaningless. Agree or disagree. Agree or disagree.

What it’s really about: Establish your priorities, decide what you want, determine what you will exchange for that, and go to work.

More than anything else, economics has a part in everything you do. Everything! How? We are always deciding things based on what we want. Therefore…

The two foundational ideas of economics: 2. We are making choices based on those values. 1. We are always assigning value to things.

Remember these?… They’re each the same thing to all people… But each person values each one DIFFERENTLY!!!

What is Economics, then? It is: Looking to have and to use stuff in order to make life better. I’d be a little better off with a few nice, new bandages, thank you!

Can each of us have anything and everything we want? Why can’t we? Easy: There’s not enough of the stuff we want to go around! “Waaaaaaaa!” What?! We can’t?!!

This is the first major principle of economics: Scarcity What is this? Stuff we like to have is limited.

Scarcity This also involves resources being scarce. Resources are stuff used to make things. So then… We must decide WHAT resources to use for WHAT things. Hmm…

Economics, then, could be defined simply as… Unlimited wants Limited resources versus Get ready ‘cuz I’m gonna limit your resources, pal! But I still want it!!!

So then, really, when you think about it… All that Economics is, really, is the science of decision-making. Everything has some alternate use!

Some things about scarcity Don’t forget! Scarcity is simply that we don’t have enough stuff to have for all the uses we’d like to have stuff for! Oh, I see. It’s all about how we make a choice !

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

Some things about scarcity Scarcity is not the same as shortage: A shortage is when there is notably less supply for effective demand. Demand still may be met, but scarcity is still in effect. Why? Oh my, we’re running low on pencils!

Once again… Scarcity is simply that the things we want are limited. But I still want it!!!

Making stuff we want The creation of useful things is called production. In this process, we are hoping to have wealth. This is stuff that has value to a large number of people at a particular time.

A key definition We expect that the products we use will have some usefulness. How much usefulness is a measure of their _____. What? What do you think the word is? The term is utility. The term is utility.

Products make up a nation’s 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… Which of these would be more associated with wealth? Why? or

Let’s get this out of the way right now… Money and wealth are not the same thing! How’s that?… How’s that?…

Good Stuff Produced things, or products, are also known as goods and services. They are classified as such because they can be bought and sold. A good or a service is something people want some of rather than none of. How do we know they want it? Not so fast! We’ll get to that later!

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

What is a good? It is a material item. Examples: a car, a candy bar, a stereo, a house, a stick of celery, some floor tile, a notebook, the bottle of Super-Shine Magma-Sheen™ that makes Nick’s hair so schnazzy. It is some physical, tangible thing. (& remember: people want to buy it…)

What is a service? It is a non-material item. Examples: legal representation, plumbing work, hairstyling, acting, that groovy dance step that Robert does out on the floor—yowwie!—for which girls give him the big bucks. It is an activity a person does. The key is that he or she gets paid for it, because it only counts if it is bought.

How well they are bought and sold… This determines the (cha-CHING!) economic health of the country. Why do we engage in voluntary exchanges? Both parties will be better off! Both are winners!

Again: Both are winners! Even though there is some trade-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!

Both are winners! Ruff ruff! Get rid of the idea that, with healthy economic activity, someone wins while another loses! Rover says…

Remember this guy? What do others think about his newly found fortune?

Again, if this is going real good…

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

Voluntary exchange Key principle is that of sanctity of contract. What is this about? It is that we expect one another to do what is right when we buy and sell. We shouldn’t have to write it all out officially! Another key principle is that of private property. What is this about?

Voluntary exchange Private property is the idea that each of us has a right to make just claims to stuff, and then to do what we think is 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 same? What is the difference between price and cost? Price: Assigned value in monetary terms. Cost: What you give up to get something.

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

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

More Opportunity Cost So here it is again in another way… Price: The value of an opportunity in real terms. Cost: A foregone opportunity.

Opportunity Cost Once again, economics is the science of decision-making… There’s always something else I can do with something I value! Always! 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 brain

X-Ray of Homer Simpson’s brain