Economics

What is Economics? The study of choices

Micro vs. Macro Economics Macro is the study of the national economy as a whole = we study economic output, inflation and unemployment of the nation. Micro is the study of individuals, firms and industries = we study how prices and output are determined for a firm or industry

What is Economics? The study of choices The role of wants there are unlimited wants

What is Economics? The study of choices The role of wants there are unlimited wants The role of scarcity there are limited resources Shortage vs. Scarcity

What is Economics? The study of choices The role of wants there are unlimited wants The role of scarcity there are limited resources The role of opportunity costs choosing how to use our resources has consequences

The opportunity cost is the next best alternative Opportunity Costs = Forgoing one product or opportunity for another The opportunity cost is the next best alternative

Opportunity Costs Opportunity cost are measured in: time - a basketball game vs. movies

Opportunity Costs Opportunity cost are measured in: time - a basketball game vs. movies goods - new shoes vs. compact disc

Opportunity Costs Opportunity costs are measured in: time - a basketball game vs. movies goods - new shoes vs. compact disc resources - wilderness vs. minerals needed for production

Opportunity Costs Your Pencil or Pen Decisions on how to use our resources, time and money are based on how much utility that a product or service gives us Utility = usefulness of a product or service or the satisfaction you receive from a product or service What gives you utility right now? Your Pencil or Pen

Opportunity Costs Utility varies depending on needs for example your downhill skis don’t give you much utility in the summer months

Opportunity Costs Utility varies depending on needs for example your downhill skis don’t give you much utility in the summer months OC varies from one person to another Skis- no OC for non-skier OC changes over time – food and level of hunger

Economic Good vs. Economic Service Good = tangible, physical object Service = intangible, actions that one person performs for another

FACTORS OF PRODUCTION ALL RESOURCES THAT ARE USED TO MAKE GOODS AND SERVICES LAND LABOR CAPITAL

LAND NOT ONLY REAL ESTATE ALL NATURAL RESOURCES USED TO PRODUCE GOODS AND SERVICES

LABOR WORKERS – EFFORT A PERSON DEVOTES TO A TASK FOR WHICH THAT PERSON IS PAID PHYSICAL EFFORT MENTAL EFFORT

PHYSICAL CAPITAL HUMAN MADE OBJECTS BUILDINGS AND TOOLS PHYSICAL CAPITAL = GREATER PRODUCTIVITY

HUMAN CAPITAL KNOWLEDGE AND SKILL A WORKER GAINS THROUGH EDUCATION AND EXPERIENCE

PUTTING IT ALL TOGETHER WHO DECIDES HOW TO COMBINE LAND, LABOR, AND CAPITAL RESOURCES? ENTREPRENEURS JOHN D. ROCKEFELLER ANDREW CARNEGIE SAM WALTON RAY KROC BILL GATES