Economics and Economic Activities Are You Satisfied? Economics and Economic Activities

Discuss the nature of economics. Objective Discuss the nature of economics.

What Is Economics? The study of how to meet unlimited, competing wants with limited resources. The process of deciding how to “get the most with the least”—obtaining the greatest satisfaction from the least amount of resources.

Economics in Action Countries ask, “How can we meet our citizens’ wants with the resources we have available?” Businesses ask, “What products should we produce and/or provide to consumers?” Consumers ask, “How should we spend our incomes to get the goods and services we want?”

Economic Resources Resources Items used to accomplish other activities such as producing or providing goods and services Resources are LIMITED, these limitations can lead to SCARCITY.

Economics: The Study of Scarcity Economizing: Scarcity is caused by the gap between unlimited wants for goods and services and limited resources. Our goods and services are scarce because not everyone can have everything s/he wants. Scarce resources must be allocated to their best use. Deciding which goods and services to purchase or provide so that the most satisfaction can be obtained Trying to obtain the greatest satisfaction from limited resources

Making Good Choices Opportunity cost: Examples: Deciding which goods and services to purchase or provide so that the most satisfaction can be obtained If you study for an economics exam rather than going out with friends, your opportunity cost is the lost benefits of socializing with others. If a retailer closes on Sundays, its opportunity cost is the lost benefits received from being open for business on Sundays. If a government spends more money on defense than on education, its opportunity cost is the lost benefits from education.

Making Good Choices Before making a decision, you should examine the opportunity costs involved. Economic choices involve trade-offs. We must be willing to give up all or part of one thing in order to get something else. Our trade-offs should be based on the opportunity costs involved.

Basic Economic Questions What will be produced? What and how many goods and services should the society produce? How should the society allocate its limited resources between production of capital goods and consumer goods?

Basic Economic Questions How will the products be produced? What are the best, most efficient ways to use the society’s limited resources to produce its products?

Basic Economic Questions How will the products be allocated? How will the goods and services be divided among the people? How will individuals, businesses, and governments share the products?

Economic Decision-Making The heart of economics is decision-making. The objective of studying economics is to prepare for: Effective decision-making Responsible citizenship in society

Explain economic activities. Objective Explain economic activities.

Getting What We Need Four economic activities make this movement possible. We rely on others to provide us with some of the goods and services that we desire. Goods, services, and resources must move from one person to another. Consumption Production Exchange Distribution

Economic Activities: Consumption Consumption is the economic process or activity of using goods and services. The ultimate goal of all economic activity is consumption. Anyone who uses goods and services is a consumer. People consume goods and services to satisfy their wants and needs.

Economic Activities: Production Producers transform resources into more valuable goods and services. Production is the economic process or activity of producing goods and services. For consumption to occur, goods and services must be produced. Individuals who make or provide goods and services are called producers. The relationship between consumption and production must be balanced.

Economic Activities: Exchange Most resource owners require some form of payment—usually money—for the use of their resources. Producers, consumers, and resource owners exchange money payments. Payments for capital goods: Resource owners are people and organizations who provide human resources, natural resources, or capital goods for use in production. Payments for human resources: Interest Rent Producers make these money payments to get resources for production. Wages Salaries Profits

Economic Activities: Exchange After acquiring enough resources, producers are able to produce goods and services. Consumers make money payments to obtain these goods and services. This money payment is the price of the good or service. Exchanges among producers, consumers, and resource owners result in a circular movement of resources, goods, services, and money payments.

Economic Activities: Distribution Distribution is the economic process or activity by which income is divided among resource owners and producers. Money received by resource owners and producers is known as income. Resource owners use income to buy more goods and services. Producers use income to buy more resources.

Economic Activities: Distribution Resource owners and producers often engage in a tug of war over how to divide the income they receive from consumers. The way in which they divide their income depends on their society’s economic system. If resource owners don’t think their incomes are large enough They might not share their resources with producers anymore Which would cause production to cease If producers don’t think their incomes are large enough They might not make any more goods and services Which would cause consumption to cease

Money Values Consumers pay more for things that bring them greater satisfaction. Goods and services that give little satisfaction are less expensive. The values attached to money payments depend on: 3.2GHz Productivity Productive resources usually earn more than less productive ones. Demand As people’s demand for resources, goods, and services increases, so do the money payments they are willing to make. Availability or supply Resources, goods, and services that are abundant are valued less than scarce ones.