Basic Economic Concepts Chapter 1

Wants and Needs, Needs and Wants NEEDS – “stuff” we must have to survive – Food/water, shelter, clothing, transportation WANTS – “stuff” we would really like to have – fancy food, shelter, clothing, big screen TVs, jewelry, conveniences... Also known as LUXURIES

VS.

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The beliefs and practices in your life that are very important to you. Family Friends Work Religion School Culture Experiences Honesty Self Reliance Independence Acceptance Mutual Respect

Values strongly influence our spending habits. We usually do not spend our money on things we do not feel are important. Typically, the more important something is, the more we are willing to spend on.

Resources Items that people can use to make or obtain what they need or want. – Examples: Money, fuel and labor Lack of resources to do all the things individuals, businesses and governments want to do. – Make the best use of limited resources, determine what your needs are and satisfy them first.

BUT, there’s a Fundamental Problem: SCARCITY : unlimited wants and needs but limited resources

SCARCITY Everyday we are faced with the principle of scarcity Example: You stand in front of a vending machine with only a dollar to spend and debated between two equally desirable options? (Choice) But scarcity is not limited to just money or choices. Time is a limited resource. Just as you spend money, you spend time.

ANALYZING SCARCITY You have to decide how to best use resources to maximize their return. How people do this generally increases their overall happiness or satisfaction The measure of this satisfaction is called a utility. –Things that make you happy have high utility –Those that don’t , have low utility The goal for everyone is to find the best way to allocate-distribute-limited resources in order to generate the most utility

Choices, Choices Because ALL resources, goods, and services are limited, WE MUST MAKE CHOICES!!!!

Why Choices? We make choices about how we spend our money, time, and energy so we can fulfill our NEEDS and WANTS.

Activity: Match up with a partner and generate a list of 10 goods or services that are scarce. Q.When something is scarce, what happens to the price? Q. What happens when an economic Need is Scarce?

Analyzing Decisions Once you make a decision, you might second-guess yourself; doubting your choices. IndecisiveImpulsive (unable to make a decision)(inclined to act w/o thinking) What type of decision maker are YOU? 1

Analyzing Decisions Any time you make up your mind about something, or choose one option over another, you are making a decision. The results — or consequences — of your decisions affect you in big and small ways. Decisions give you power and control over your life. Making decisions shows that you are independent and responsible. 1

Analyzing Decisions You can remove some of the uncertainty and doubt from decision making by turning it into a process. A process is a series of steps that leads to a conclusion. 1.Identify the decision 2.Identify possible courses of action 3.Determine the pros and cons 4.Make a decision 5.Evaluate your decision 1

Decision Making Example 1. Identify the decision A group of students has held a number of fundraisers during the school year and has a sizable amount of money to spend on something school-related. What should the money be spent on? 2. Identify possible courses of action Create a list of ideas for the money to be spent on. 3. Determine the pros and cons List pros and cons of each option 4. Make a decision Have students vote on the best option Brainstorm steps to implement the decision made 5. Evaluate Ask student to predict if their goal will be met

The Consequences of Decisions Decision making can be stressful. Even simple choices can seem overwhelming at times. Most decisions actually have both long- term and short-term consequences. Sometimes consequences have both positive and negative results. 1

The Consequences of Decisions You can learn how to make good decisions that turn out positive more often than they turn out negative. Rely on your values, standards, and ethics to help you make healthy choices. Make sure your decisions do not interfere with the well-being of yourself and others. 1

The Consequences of Decisions Think of a decision you have made that you were concerned about the outcome, but it worked out well. Think of a decision that did not turn out well. Now, think of a major decision you will be making soon. – What will be the consequences of success? – What will be the consequences of failure? 1

Factors That Can Influence a Decision A. Values  What is important to your family, others in your culture? B. Peers  People you know  Pressure for positive or negative behaviors C. Habits  You are accustomed to doing it a certain way D. Family  Your family’s preference  Decisions other family members have made E. Risks and Consequences  What (or how much) you stand to win  What (or how much) you stand to lose F. Age  Minor  Adult Activity-Handout

TRADE-OFFS You can’t have it all! (SCARCITY – remember?) You have to choose how to spend your money, time, and energy. These decisions involve picking one thing over all the other possibilities – a TRADE-OFF!

Trade-Offs, cont. Question: What COULD you have done instead of come to school today? These are all Trade-Offs! Thanks for being here!

A special kind of Trade-Off is an OPPORTUNITY COST = The Value of the Next Best Choice (Ex: Sleeping is the opportunity cost of studying for a test)

Opportunity Costs This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. – This can be in time, energy, or even MONEY If I buy a pizza… Then I can’t afford the movies … Q: What is the opportunity cost of buying pizza?

Every Choice Comes at a Cost Every choice you make comes at a cost, without enough resources, you are forced to make choices. Opportunity cost is their next best choice that you give up in order to do something else. (The best value given up.) Some things have a lower opportunity cost. Ex. go buy a new jacket or go to the movies. Other things have a higher opportunity cost. Ex. Should I buy a car or save for College? ACTIVITY

How to Define Business Business – any commercial activity that seeks profit by providing goods and services to others in exchange for money. Profit – is the money left over after a business has paid the cost of providing its goods and services Business provide: – Consumers and other businesses with necessities – Goods and services that make life easier and better

The Motive of Business To make a Profit Without profit, a company cannot survive Profit is the reward for satisfying the needs and wants of consumers and businesses The wealth created by businesses benefits the entire community. – Businesses pay taxes – Provide jobs

Significance of Competition Competition – The contest between businesses to win customers Competition is a direct response to wants and needs Goods and services are produced and sold at the lowest possible cost Companies to successfully compete in the global economy, they must offer quality products with outstanding service at competitive prices.

Activity Think of your favorite retail store. What companies are its competition? What do you think is their target market? Target Market – A group of people identified as those most likely to become customers

Business Activities Identify opportunities for products/services Evaluate the demand for products/services Obtain start-up money and operating cash Mange the production of goods/services Market the goods/services Keep records for government regulations and improve processes

Market Research Market Research – The act of gathering and analyzing information about the wants, needs, and preferences of consumers in a certain market. Provides: – Help a business identify opportunities – Analyze demand – Respond to consumer demand for goods/services

Business and You Consumer – A person who uses goods or services Businesses decide what goods/services to produce to meet the needs and wants of consumers Businesses affect consumers when they modify or discontinue products – Decrease in demand for them

Consumers Affect Businesses Decide what kinds of goods/services they want Where they will buy them Reward companies by purchasing their products; companies make money Choose not to purchase a business’s products or services, the business usually fails