WHAT IS ECONOMICS WHAT IS ECONOMICS ECONOMICS IS ABOUT CHOICE LIMITED RESOURCES VERSUS UNLIMITED WANTS 1

QUESTIONS TO BE ANSWERED BY AN ECONOMIC SYSTEM QUESTIONS TO BE ANSWERED BY AN ECONOMIC SYSTEM OCCUPATIONS OF PEOPLE EARNINGS OF PEOPLE SPENDING OF PEOPLE STANDARD OF LIVING OF PEOPLE 2

FUNDAMENTAL ISSUE FUNDAMENTAL ISSUE FREEDOM FOR INDIVIDUALS TO USE THEIR RESOURCES AS THEY WISH VERSUS RULES, REGULATIONS, AND RESTRICTIONS TO ENSURE SOME LEVEL OF EQUALITY OF RESOURCES AND OUTCOMES 3

ONE WAY TO SOLVE – COMMAND ECONOMY ONE WAY TO SOLVE – COMMAND ECONOMY SINGLE PERSON OR CENTRAL AUTHORITY MAKES THE DECISIONS ABSOLUTISM 4

OTHER WAYS – VARIOUS FORMS OF “COLLECTIVE CHOICE” OTHER WAYS – VARIOUS FORMS OF “COLLECTIVE CHOICE” SOCIALISM COMMUNISM FASCISM 5

THE SYSTEM WE WILL STUDY: CAPITALISM THE SYSTEM WE WILL STUDY: CAPITALISM “CAPITAL”: PHYSICAL AND HUMAN RESOURCES CAPITALISM EMPHASIZES INDIVIDUALS MAKING CHOICES ABOUT THEIR RESOURCES AS THEY SEE BEST 6

ALSO CALLED THE MARKET, OR PRICE, SYSTEM BASED ON “INCENTIVES” CONSUMERS’ INCENTIVE TO IMPROVE THEIR LIVES BUSINESSES’ INCENTIVE TO MAKE PROFITS 7

THE TWO INCENTIVES COME TOGETHER BUSINESSES MAKE MONEY BY GIVING CONSUMERS WHAT THEY WANT CONSUMERS “REWARD” BUSINESSES WHO DO AND “PUNISH” BUSINESSES WHO DON’T 8

BUT HOW DO RESOURCES GET ALLOCATED IN THIS SYSTEM? BUT HOW DO RESOURCES GET ALLOCATED IN THIS SYSTEM? BY “PRICE” – CONSUMERS WANT MORE OF SOMETHING – PRICE UP – SIGNAL TO BUSINESSES TO MAKE MORE CONSUMERS WANT LESS OF SOMETHING – PRICE DOWN –SIGNAL TO BUSINSSES TO MAKE LESS 9

RESOURCES MOVE TO WHERE THEY ARE HIGHEST VALUED – BY PRICE – WITHOUT ANY CENTRAL AUTHORITY BEING INVOLVED (“The Wealth of Nations”) 10

SUPPLY AND DEMAND SUPPLY AND DEMAND SUPPLY – BUSINESSES – MAKING AND SELLING PRODUCTS AND SERVICES DEMAND – BUYERS – CONSUMERS – PURCHASING PRODUCTS AND SERVICES 11

EXAMPLES EXAMPLES NATURAL DISASTER – PRICES RISE FOR EQUIPMENT AND NECESSITIES – MOTIVATES NEW SUPPLIES SENT RECENT “HOUSING GLUT” – PRICES FALL – MOTIVATES BUILDERS TO REDUCE CONSTRUCTION OIL AND GAS PRICES HIGH AS WORLD DEVELOPS – MOTIVATES CREATION OF “ALTERNATIVE FUELS” AS WELL AS NEW TECHNIQUES FOR FINDING “TRADITIONAL” FUELS 12

“OPPORTUNITY COST” – NOTHING IS FREE “OPPORTUNITY COST” – NOTHING IS FREE DEFINITION – BENEFIT THAT GIVE UP BY NOT USING RESOURCES IN ANOTHER WAY STUDY VERSUS PLAY SLEEP VERSUS CLASS BUY SHOES VERSUS BUY SHIRT REMODEL BATHROOM VERSUS BUY VEHICLE WORK VERSUS HOME FOR CHILDREN 13

SO CAPITALISM PUTS EMPHASIZE ON INDIVIDUAL CHOICE AND INDIVIDUAL ACHIEVEMENT SO CAPITALISM PUTS EMPHASIZE ON INDIVIDUAL CHOICE AND INDIVIDUAL ACHIEVEMENT QUESTION 1: WILL THIS RELIANCE ON INDIVIDUAL MOTIVATION MAKE THE TOTAL ECONOMIC “PIE” LARGER THAN WITH OTHER SYSTEMS? 14

QUESTION 2 QUESTION 2 WILL CAPITALISM RESULT IN MORE INEQUALITY OF RESULTS, AND IF SO, HOW ADDRESS? * INCOME REDISTRIBTION? * FOCUS ON OPPORTUNITY? 15

MICROECONOMICS MICROECONOMICS “SMALL ECONOMICS” – ECONOMICS OF INDIVIDUAL HOUSEHOLDS, CONSUMERS, WORKERS, AND BUSINESSES 16

MACROECONOMICS MACROECONOMICS “BIG ECONOMICS” – NATIONAL AND INTERNATIONAL ECONOMICS AND ECONOMIC POLICY 17

WHY DOES ECONOMICS FOCUS ON MONEY? WHY DOES ECONOMICS FOCUS ON MONEY? EASY AND COMMON WAY TO MEASURE RESOURCES DOESN’T MEAN IGNORE ITEMS THAT CAN’T EASILY BE MEASURED WITH MONEY 18

A LOOK AHEAD A LOOK AHEAD BENEFIT/COST ANALYSIS PRICES AND TIME SPECIALIZATION AND TRADE COMPETITION 19