406 is the study of how we make decisions in a world where resources are limited.

419 is the branch of economics that studies the behavior of small units in an economy, such as the pricing policy of a business or household decisions on what to buy.

The fundamental economic problem of The fundamental economic problem of occurs when we don’t have enough resources to get all the things we desire. 407

It is the problem of scarcity, such as limited time or money, that forces us to make among alternatives. 407

410 The alternatives we all face in life when we have to decide to do one thing or another are called - .

411 The value of what you give up when you have made a choice between trade-offs is called the .

407 are required for survival and include things such as food, water, transportation, shelter and clothing.

407 are things that we wish for, crave or desire for entertainment, comfort or out of basic greed or envy of others.

The factors of production

The factors of production (resources)

Natural Resources (Land) All the resources that come from nature. Gifts of the Earth Used in or for the products you need or want.

Labor (human capital) A country’s human resources. Labor requires workers in order to produce goods and services. Some nations still use a great deal of child labor

Capital The tools, machinery, and buildings used to make products. Capital goods aid the production of consumer goods. Capital goods are purchased with financial capital ($$$)

Entrepreneurs The individuals who start new businesses and innovate Risk takers Driving force of the economy

Economic Models and Graphs Charts, graphs, maps diagrams, models, simulations Make the complex simple, make the large small Understand it Predict it Change it Use it Improve it Repair it Manipulate it

Circular Flow Models

Circular Flow Models

Private sector Businesses Private sector

Circular Flow Models

Private sector-resources market Private sector-stores Goods and services Finished products revenue payments Services, wages Services, revenue Labor, taxes Goods, services, taxes Public sector Wages, salary Employment, resources Skills, resources Labor, resources

Costs-money going out Total Fixed Costs (rent, electric, insurance, water, franchise fees, labor salaries) Total Variable Costs (labor wages, advertizing, resources, office supplies, packaging, mail) Total Cost (tc=tfc+tvc)

Revenue –money coming in (income, receipts, purchase prices, total revenue)

Benefit (profit, total revenue minus total costs) (p=tr-tc)

Marginal Cost extra cost for producing one more Marginal Revenue Extra revenue for selling one more

extra profit for producing and selling 1 more Marginal Benefit extra profit for producing and selling 1 more Profit maximization point MC=MB MB

1.00 .90 .80 .70 .60 .50 .40 .30 .20 .10 .00 MC +.87 -.87 +.77 -.77 +.63 -.63 +.50 P -.50 -.38 +.38 -.25 +.25 -.13 +.13 MB 0 1 2 3 4 5 6 7 +.74 +.52 +.25 +-0 -.25 -.52 -.74 Q

Continuum of Economic Systems Utopia Mixed Economies The Jungle Communism Capitalism North Korea China Sweden Canada USA No pure example Exists in nature No pure example Exists in nature Degrees of Socialism Take from one group, give to another *You have two cows *The government takes your cows and gives you some milk *You have two cows *The government takes one of your cows and gives it to a person with no cows *You have two cows. *You sell one and buy a bull. *Your herd multiplies *You sell them and retire.

Adam Smith The Invisible Hand Laissez-Faire Father of Capitalism The Wealth of Nations, 1776 The Invisible Hand Laissez-Faire

Karl Marx Proletariat Bourgeoisie Revolution Father of Communism The Communist Manifesto, 1848 and Das Kapital, 1867 Proletariat Bourgeoisie Revolution

Elements of the Capitalist Free Market Economy Capitalism (private ownership, profit) Free Enterprise (freedom from government) Market economy (voluntary exchanges) Productivity Specialization Division of Labor Human Capital Economic Interdependence

Capitalism Private ownership of property and the factors of production

Free Enterprise The right of businesses and individuals to conduct their activities with minimal government interference.

Productivity Productivity is the measure of the amount of output produced by a given amount of input.

Specialization Specialization is when businesses, people, and countries concentrate on a particular set of goods and services. Specialization improves productivity.

Division of Labor The breaking down of a job into separate, smaller tasks performed by different workers. Division of labor makes use of differences in skills and abilities.

Human Capital The sum of the skills, abilities, and motivations of people.

Economic Interdependence All parts of an economy are connected and dependent on each other to provide goods and services.