Economics: Chapters One and Two. “The dismal science.”

What is the fundamental economic problem? 1. Scarcity. 2. Economics is the study of how we can lesson the problem of scarcity. 3. How can we BEST use the worlds resources to help the most people.

Needs v. Wants. Needs Wants 1. A human need is something that a being must have to live. 2. Food, air, water, shelter…. 3. It is the most basic of the material world. 1. Wants go beyond what is needed to live. 2. Human wants are unlimited. 3. We live in a world of scarce resources. 4. When needs and wants collide it creates SCARCITY.

Bill Gates Home?

What are the three economic questions? 1. WHAT to produce? 2. HOW to produce it? 3. For WHOM? 4. Who answers these three questions in the United States? 5. The CONSUMER! 6. CONSUMER SOVEREIGNTY!

Dictatorship or Democracy? 1. If one person or small group answers the three economic questions, then it’s a dictatorship. 2. If the consumers answer the economic questions it’s a democracy. 3. All market economies today are democracies.

Which factor of production do economists say is the most important? ENTREPRENEURSHIP!

Capital v. Labor Intensive Economies 1. The heavy use of human labor to maintain and build the economy. 2. In poor countries human labor is cheap and plentiful. 3. Human labor is much slower and less productive. 1.It is the heavy use of technology and machines to operate the economy. 2. Technology/Machine s are very expensive to buy and operate. 3. Higher tech economies are more productive.

What is Production? Putting land, labor, and capital into PRODUCTION 1. Production is: Putting land, labor, and capital into PRODUCTION

Value, Utility, and Wealth 1. VALUE is worth that can be expressed in dollars. 2. Utility. In order to have VALUE it must have a purpose or use. 3. WEALTH is the accumulation of money or goods with VALUE.

Better Productivity Division of Labor Specialization 1. This is the mass production of products. 2. Mass production brought the price of manufactured goods down. 3. This helped create a consumer economy. 4. Fredrick Taylor-Time motion studies. 1. Breaking down complex tasks down into simple ones. 2. This is the heart of mass production and the division of labor. 3. What American is famous for maximizing the division of labor idea for production?

Economic Interdependence 1. Modern/Market economies must trade with other regions of the world. 2. No country/region has all the resources it needs to grow. 3. Countries that trade the most are the wealthiest. 4. 80% of all the worlds trade is between the North America, Europe, Japan, China, and Australia. “No country ever went broke because of good trade.” Ben Franklin.”

Interdependence Continues…. 1. Workers now compete internationally for employment. 2. Poor countries: Are overpopulated and have rock bottom wages compared to wealthy countries. Have few taxes. Have weak or no environmental laws.

Adam Smith 1. Revolutionary, economic thinker who championed the free market economy. 2. All the powerful European powers practiced MERCANTILISM. 3. Mercantilism is the control of the economy by the government. 4. The government controls trade and creates monopolies. 5. Mercantilism led to colonies.

The Wealth of Nations-1776 “ INVISIBLE HAND.” “LAISSEZ-FAIRE” 1. There should be NO government involvement with business or trade. 2. No government monopolies. 3. No government barriers for individuals to go into business for themselves. 1. Who/What would regulate business and trade? “ INVISIBLE HAND.” “Greed and Competition” would regulate the markets. 2. This “Hands Off” by government was/is called: “LAISSEZ-FAIRE”

Adam Smith Continued…. 1. His book was published in 1776. 2. What do you think the American revolutionaries would think of it? 3. What caused the Boston Tea Party? 4. Which side do you think Smith would take? 1. Republicans today view Adam Smith as one of their main economic thinkers. 2. Alexander Hamilton is also a Republican founder. 3. A Republican today is known as a “Hamiltonian.”

Mel Fisher 1. Is Fisher an entrepreneur? 2. What eminent domain issue did he have to fight? 3. Without the PROFIT MOTIVE, where would the treasure be today? 4. Should it be held only by a museum? 5. Without investors, could Fisher have found the treasure?

Economic Choices and Decision Making 1. Trade-Offs. 2. Opportunity Costs. 3. Production Possibilities. 4. Cost-Benefit Analysis. 5. The above helps us make rational choices.

Chapter Two-Economic Systems Economics Systems: It is an ORGANIZED way of managing the four factors of production to provide for the wants and needs of the society.

Three Kinds of Economic Systems 1. Traditional. 2. Command. 3. Market.

Traditional System-Advantages 1. Everyone knows their role/place. 2. Exact certainty about WHAT, HOW, for WHOM to produce. 3. Custom, custom, and more custom.

Disadvantages 1. Discourages new ideas. 2. Stagnant society. 3. Lack of economic progress.

Advantages of a Command Economy 1. Economy can change directions quickly. Soviet Union WWII. 2. Guaranteed jobs. 3. Most resources available to all, but limited.

Disadvantages 1. Needs first, few wants provided. 2. Hard work not rewarded. 3. Large government bureaucracy. 4. Little social/political freedom.

Advantages of a Free Market 1. Adjusts quickly to consumer demand. 2. Lots of individualism/innovation. 3. Less government interference with business and individuals. 4. A lot of social/economic/political freedom. 5. Great variety of consumer goods.

Disadvantages 1.Little support for some people. Homeless people…. 2. Worker uncertainty. 3. Market failures- Depressions/Recessions.

Mixed Economy 1. Market failure and imperfect competition makes it necessary for the government to intervene in the economy. 2. The “Invisible Hand” does work with Monopolies and oligopolies.

Free Enterprise v. Capitalism 1. F.E. is a competitive system that has no government barriers for individuals to go into business for themselves. 2. Capitalism is a competitive system that involves large financial investments in technology and machinery. 3. Both are motivated by the PROFIT MOTIVE. 4. Private property and free exchange of goods/services are also protected. Maryland v. Dartmouth College.