Fundamental Economics Economics pt. 1, Lesson 1

Economic Choices We use economics everyday Economics: study of how we make decisions about how to distribute limited resources Needs vs. Wants; difference The fundamental economic problem is the issue of scarcity Scarcity: when we do not have enough resources to produce all of the things we would like to have

What, How, For Whom HOW should we get energy? Unlimited wants + limited resources = scarcity; what does society do Each society has to choose WHAT to produce; choices? Each society must choose HOW to produce; examples? After goods are produced each society must decide FOR WHOM are these goods for; in the US we use a price system These are hard questions that every country must answer HOW should we get energy?

Using Economic Models Economists often formulate theories about how economies work from the data they collect These theories become economic models Economic models: simplified representations of the real world that used to help predict what will happen in the economy Models are based on assumptions; are these models facts? NOT this type of model

Market Economy The United States has a market economy, often described as capitalism Market economy: system in which supply, demand, and prices help people make decisions and allocate resources Capitalism: private citizens own most, if not all, means of production; meaning? Businesses are allowed to compete for profit with a minimum of government interference Most economic decisions are made by individuals looking out for their own and their families’ self interest The choices you make and businesses make affect what you buy and what businesses produce

Understanding Your Role Keeping informed is important to understanding economics; ways to get informed? Smart citizens should understand how incentives affect people’s economic decisions Incentives: rewards that are offered to get people to take certain actions The role of government should be to maintain competitive markets, not to help one group over another Government can support their goals by offer incentives or punishing; carrot or stick approach