Unit 1 - Intro to Economics What is economics?

Intro to Econ A. Economics- the study of human efforts to satisfy unlimited wants with limited resources. - Economics is a social science that deals with people and how they deal with scarcity. B. Scarcity- not having enough resources to produce everything people want. 1. Scarcity is the most fundamental economic problem. 2. There is no such thing as a free lunch- everything involves some time, money, or resources.

C. Three basic economic questions 1. What to Produce- food vs. shelter vs. defense

C. Three basic economic questions 1. What to Produce- food vs. shelter vs. defense 2. How to Produce- factories vs. hand made

C. Three basic economic questions 1. What to Produce- food vs. shelter vs. defense 2. How to Produce- factories vs. hand made 3. For whom to Produce- who is your target audience? how did you decide?

D. Factors of production 1. Land - Natural resources including forests, minerals, water, etc. 2. Capital – tools and equipment used to make goods and services. Financial capital- money used to buy tools and equipment for production. 3. Labor- people to do the work. Can change in time (growth, immigration, war) Entrepreneurs- driving force of the economy. Take risks to gain profit

E. Economic Systems 1. Traditional- economic activity based on habit or custom

E. Economic Systems 1. Traditional- economic activity based on habit or custom 2. Command- central authority decides how to answer the economic questions.

E. Economic Systems 1. Traditional- economic activity based on habit or custom 2. Command- central authority decides how to answer the economic questions. 3. Market- people are free to act in their own self interest

E. Economic Systems 1. Traditional- economic activity based on habit or custom 2. Command- central authority decides how to answer the economic questions. 3. Market- people are free to act in their own self interest 4. Mixed- combination of any of the above. Most countries are mixed including the US.

F. Opportunity Costs 1. Trade off- alternatives, if you can’t have everything you must prioritize. 2. Opportunity Cost- The cost of your next best alternative, including money, time, and resources when a decision is made.

G. Needs and Wants 1. Need- required for survival - ex. ____________________________. 2. Want- something desired- ex. ______________________________.

H. Goods, Services, and Consumers 1. Goods- tangible products, things you can see or touch a. consumer goods - final use is by the consumer b. capital goods - used to produce other goods and services c. durable goods - good that lasts more than 3 years under normal use

H. Goods, Services, and Consumers 2. Services- work performed for someone else. Ex.______________________ - fastest growing part of economy 3. Consumers- people to use the goods and services a. Consumption- process of using goods and services b. Conspicuous consumption - use of a good or services to impress others

J. Utility and Value 1. Utility- the capacity to be useful to someone. Should vary from person to person 2. Value- scarcity and utility together create value 3. Paradox of Value - why are some things we need very cheap (water) and other things we don’t need very expensive (diamonds)?

M. Capitalism and Free Enterprise Capitalism -- system where private citizens own the factors of production. 2. Free Enterprise Economic Freedom -- Everyone has choices. Voluntary Exchange -- Free to buy and sell from/to anyone. Private Property -- Control your possessions as you wish. Profit Motive -- improve materials and well being by taking risk.

Making Economic Decisions The most desirable of the options you pass up is called the Opportunity Cost

Making Economic Decisions What other option do you have other than using 3 hours for one task? You could split your time among multiple activities! Thinking at the Margin – decision involving adding one unit and subtracting one unit, rather than all or nothing

Making Economic Decisions Options Benefit Opportunity Cost 0 hours studying, 3 hours sleeping F on Test None 1 hours studying, 2 hours sleeping C on Test 1 hour of sleep 2 hours studying, 1 hour sleeping B on Test 2 hours of sleep 3 hours studying B+ on Test 3 hours of sleep

Making Economic Decisions There is a point at which you are paying the same increase in cost, but seeing lower benefits You must make the decision as to whether the cost is worth it This same process is used by businesses and consumers to make decisions