Economics What is Economics?

What is Economics? Study of how people meet their needs by making, distributing, and using goods and services. Peoples needs are met by using productive resources natural resources, human resources, capital goods, and entrepreneurship NOT spread evenly around the world

Goods and Services Goods- objects that people make and use. Services- activities people do for others.

The Problem of Scarcity Inability of our existing resources to meet our unlimited wants Think of an example for the problem of scarcity. Everyone may want a new home but there are not enough materials, land, or labor available to build new homes for everyone.

Opportunity Cost When we choose to use our resources to satisfy a particular need, we give up the chance to use those same resources to satisfy other needs. “Trade-off” occurs whenever we give up one thing for another Every economic decision using resources involves a trade-off, known as the opportunity cost of that decision. The opportunity cost of a decision is the next best choice that was given up—true cost of a decision. Give an example of opportunity cost. Money to buy stereo, you lose the opportunity to use that same money to buy a computer Government spends its resources to equip its army, fewer resources are available for other purposes

Select one economic decision you made recently and its opportunity cost

Every society has scarce resources to meet the unlimited wants of its members, every society must answer these questions.

3 Basic Economic Questions Societies answer these questions in different ways through the type of economic system instilled. Traditional-produce what ancestors produced, using same traditional methods, and then divide it as their ancestors did Command-ruler tells everyone what to do and decides who gets what—communism or dictatorship Free Market or Mixed Market-people are free to produce what they think they can sell to others, while others are free to buy whatever they can afford. Government does regulate some business.

Give examples of the types of economic systems. Traditional People grow own food and make their own goods, barter or exchange of goods without the use of money/currency. Command Communist countries of Cuba and North Korea are close to it. Market United States, free to buy and sell what they wish, prices determined by supply and demand, sometimes called capitalism.

Specialization and Trade What is specialization? Making of only some types of goods or services How does it affect trade? It increases trade because regions rarely produce everything they need. They depend on one another for many goods and services.

What causes specialization? Productive resources are NOT spread evenly around the world Different parts of the world have different Climates Soil Landforms Bodies of water Mineral resources Training Education Experience Therefore, different regions make certain types of goods based on the productive resources available.

Advantages of Specialization Regions can take advantage of their own productive resources As a result, a region can produce a good or service at the lowest opportunity cost. Producers become more skilled Producers learn how to make goods faster and more efficiently through the use of special tools and training.

How Specialization Encourages Trade Because regions specialize, they rarely produce everything they need. Regions then rely on one another to supply many goods and services. Trade-merchants bring goods form one place to another, and then sell them in markets Imports: Goods from foreign countries brought into a country for sale. Exports: Goods and services sold from one country to other countries.

How Supply and Demand Help Set Prices Demand– how much people want or need a product. Factors influencing demand: How well does the product satisfy people’s needs? Are there alternative products that satisfy the same needs? Is the product something people must have, or can they do without? Is it something everyone else has? Will having the product give the owner more power or status? Stronger the demand, the more expensive the product Buyer willing to pay more for quality, usefulness, and value.

How Supply and Demand Help Set Prices Supply– how much of a product is available for sale Small supply of a product is available, then it may be more expensive People will compete to buy it

How Supply and Demand Help Set Prices The Interaction of Supply and Demand PRICES HIGH DEMAND/ SHORT SUPPLY Interaction of these forces affects the price that a buyer is willing to pay and what a merchant is willing to accept PRICES LOW DEMAND/ LARGE SUPPLY

Supply and Demand Create World Trade The need to exchange goods led to the development of trade and distinct trade patterns between peoples very early in human history. Reliance of one country on the resources, goods, and services of another country creates INTERDEPENDENCE Interdependence increases globalization—process through which countries are increasingly linked to each other through culture and trade