Basic Principles of Economics It is study of how individuals, families and businesses use limited resources to fulfill their unlimited wants

Wants v. Needs What are they? Choices- Scarcity-we can’t have it all Factors of Production-Land, Labor, Capital and Entrepreneurship

Trade-Offs Exchanging one thing for another Opportunity Cost: the value of the next best alternative that has to be given up for the one chosen

Guns and Butter Example Production Possibilities Curve Shows the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time.

Production Possibilities Curve

Economic Systems The Three Basic Questions to determine an economic system What Should Be Produced? How Should It Be Produced? For Whom Should It Be Produced?

Traditional Answers questions according to traditions Command Government leaders answer the questions Market Individuals in the Market answer the questions Types of Economic Systems Mixed Economy-uses both of these

Mixed Economic System Combines a little of Command and Market Most Economies are this one! They are characterized by a basic market system with government regulation---the more government regulation the more command it is

Making Comparisons Work with a partner and come up with slogans that one might use for each economy-

Characteristics of American Economy Limited Role of Government Laissez-faire-”let the people do as they choose” Adam Smith-”the invisible hand of the economy” is all of the FE factors working together keeping the economy healthy

Freedom of Enterprise - free to control the factors of production Freedom of Choice Profit Incentive The desire to make a profit-this motivates people to start businesses and be successful

More Characteristics Private Property You can own your own home Competition Rivalry among producers and consumers

Goals of the US Economy Economic Freedom Individuals can make their own decisions about jobs, private property, the market Economic Effeciency Using resource wisely Costs of economic actions do not exceed the benefits

Economic Equity Fair and just Equal pay for genders Economic Security Protection against risk in the economy-losing your job Accidents, business failures

Economic Stability Avoid extreme ups and downs of the standard of living Economic Growth Producing more and expanding the economy

Trade-Offs among goals Security and Growth may go against efficiency