Introduction to Economics Study Guide pages 1 & 2

Definition of Economics… Study of how Study of how individuals & society–with unlimited wants & needs individuals & society–with unlimited wants & needs make choices (decisions) about make choices (decisions) about the use of limited resources the use of limited resources

Micro vs. Macro The economy is a frog

Let’s go to bio for a moment How do you study a frog? How do you study a frog? Dissection Dissection How do you look a the small parts of the frog? How do you look a the small parts of the frog?

Understanding microeconomics Through a microscope Through a microscope It helps you look at small parts. It helps you look at small parts. Microeconomics looks at small parts of the economy. Microeconomics looks at small parts of the economy. 1 company, 1 industry, 1 person 1 company, 1 industry, 1 person

Macroeconomics Macro is the study of the entire frog. Macro is the study of the entire frog. How do all the parts work together? How do all the parts work together? Why does the frog jump? Why does the frog jump?

Quick quiz – Micro OR Macro Microsoft? Microsoft? Savings plans of students? Savings plans of students? GM, Ford, Chrysler? GM, Ford, Chrysler? unemployment rate? unemployment rate? micro micro macro macro

What do Economists do?

What do weathermen/women do? predict / forecast give facts / temp show models / maps give laws / cold front + warm air = storm interpret / dry summer leads to poor crops

Economists do the same thing models – used to generalize models – used to generalize predict – based on prior knowledge predict – based on prior knowledge apply laws – high price, low demand apply laws – high price, low demand

Limited Resources We live in a world of scarcity We live in a world of scarcity almost anything you can think of has a limit almost anything you can think of has a limit Why do we like money so much? Why do we like money so much? It is a relative statement It is a relative statement for example… for example…

Would you miss $350,000???

It is all about choices Opportunity Cost Opportunity Cost what you give up in order to get what you want. what you give up in order to get what you want. It is always the NEXT BEST alternative. It is always the NEXT BEST alternative.

What can we produce in our nation? We have limited resources to make GUNS & BUTTER We have limited resources to make GUNS & BUTTER It is decision making time It is decision making time How will we make the choice? How will we make the choice?

Production Possibilities Guns Butter

Production Possibilities Curve

What do people want and need? Goods and Services. Goods and Services. Some are ESSENTIAL to life. Some are ESSENTIAL to life. Others we can miss out on. Others we can miss out on. What is essential? What is essential? Food, water, shelter, clothing – optional Food, water, shelter, clothing – optional What is NOT essential? What is NOT essential? Everything else. Everything else. We do not need our cell phones, iPods, etc. We do not need our cell phones, iPods, etc.

What is a good? A tangible item A tangible item It has physical characteristics It has physical characteristics Touch, smell, taste, hear. Touch, smell, taste, hear. LOFTFC!!!!!!!!!!!!!!!!!!!! !!! LOFTFC!!!!!!!!!!!!!!!!!!!! !!!

Categories of Goods Consumer Goods Consumer Goods Things we purchase Things we purchase Capital (producer) Goods Capital (producer) Goods Things used by producers to make goods and services. Things used by producers to make goods and services. Durable Goods Durable Goods Goods that last 3 or more years. Appliances. Goods that last 3 or more years. Appliances. Non-durable Goods Non-durable Goods Items that will not last. Food. Items that will not last. Food.

What is a service? An action performed by one person for another. An action performed by one person for another.

Why do we want or need goods and services? To deal with the issue of scarcity. To deal with the issue of scarcity. To satisfy our wants and needs. To satisfy our wants and needs. These g & s have value. These g & s have value. In Economics, it is called: In Economics, it is called: Utility Utility The ability to provide usefulness or The ability to provide usefulness or Satisfaction. Satisfaction.

Mick Jagger - Economist Academically successful, he attended Dartford Grammar School where he passed 3 A- levels, before entering the London School of Economics on a scholarship. He studied for a degree in accounting and finance, but attended for less than a year and did not graduate, leaving to pursue a musical career. School legend has it that Jagger was asked to leave the London School of Economics after an incident in which he rode a motorcycle inside the library. Academically successful, he attended Dartford Grammar School where he passed 3 A- levels, before entering the London School of Economics on a scholarship. He studied for a degree in accounting and finance, but attended for less than a year and did not graduate, leaving to pursue a musical career. School legend has it that Jagger was asked to leave the London School of Economics after an incident in which he rode a motorcycle inside the library.Dartford Grammar SchoolA- levels London School of EconomicsscholarshipDartford Grammar SchoolA- levels London School of Economicsscholarship

Mick Jagger - Economist “I can’t get no…satisfaction” “I can’t get no…satisfaction” “I can’t get no…satisfaction “I can’t get no…satisfaction “You can’t always get what you want” “You can’t always get what you want” “You can’t always get what you want “You can’t always get what you want

How do we get the goods and services? They have to be produced. They have to be produced. Producers gather and arrange the Factors of Production. Producers gather and arrange the Factors of Production. Land – natural resources Land – natural resources Labor – work; human resource Labor – work; human resource Capital – items used to produce others Capital – items used to produce others Entrepreneurship – skills used in making decisions Entrepreneurship – skills used in making decisions

Looking Ahead What decisions have to be made by societies to deal with scarcity? What decisions have to be made by societies to deal with scarcity? What questions should be asked by those who make decisions? What questions should be asked by those who make decisions?