What is Economics Basic Economics

Section 1: The Fundamental Economic Problem Economics The system that society uses to produce and distribute goods and services The study of how we make decisions in a world where resources are limited Why study economics??? Well informed citizens do more than just vote, we should know about and make smart economic choices… Why does the government pay so much attention to the economy??? B/c resources are limited

BOX 2 Needs and Wants A A need is something that we “need” Required for survival such as food, clothing and shelter A - A want-some things that we would like to have. Entertainment, vacations, clothing, shoes, PS3s, jewelry… Things that make life more “ comfortable and enjoyable  FUN ”

Box 2 cont… Goods things that can be made or manufactured/used to satisfy our wants and needs (books, cars) Capital goods the things used to manufacture other goods (tools, machinery) or things that made this school: bulldozers, trucks, hammers.. Consumer goods goods meant to be sold to consumers for use Services work that is done for someone for a certain price

What is scarcity? What is the fundamental economic problem? What is the fundamental economic problem? issue of scarcity Scarcity- this occurs when ever we do not have enough resources to produce all of the things we would like to have

U.S. has this problem and so do you and I! rational consumer asks whether or not he or she can afford the expensive car or the cheaper car Brand name or generic

Putting a Price on Things box 4 Price or VALUE is based on two basic factors 1. Supply 2. Demand -Supply -the amount of a good or service that is available for consumers to buy -Demand -the amount of a good or service that consumers are willing to buy

Determining Price -Price is determined by comparing the amount of demand to the amount of supply and finding an amount where they are equal --Market or Equilibrium Price this is the point at which supply and demand meet and price is determined

Effects of Price -Shortages -when demand is greater than supply -What happens to price? It goes up -Surplus -When supply is greater than demand -What happens to price?

Section 2: Making Economic Decisions (on back) Trade-offs: (see page 56/59 “economic terms”) The alternative you face if you decide to do one things rather than another Ex: economic choice to buy a DVD player. Or more pollution-free air means less driving Taking more time to study means having less time to… ? BIG PICTURE? so A country wants more $ to go to education, so less money has to go to medical research or National Defense

You are going to college after high school Spend more than just cost of books, transportation, tuition… Biggest cost is full-time income that you will not be able to earn because of the time you will have to spend studying and going to class and other time-consuming activities…

Economics have a term for this broad measure of cost: Economics have a term for this broad measure of cost: OPPORTUNITY COST (pg 59 too) Cost of the next best use of your time or $ when you choose to do one thing rather than another. Time, not just money! If you are going to clean your house, you will need? Not only that but also, the time you could spend doing other things like studying or visiting with friends…

Measures of Costs Fixed costs: Costs or expenses that are the same no matter how many units are produced. Ex: rent, car payment Variable costs: Expenses that change with the # of products produced! Ex: Wages, energy bill… Total costs: Add fixed costs to variable costs we have TOTAL costs!

Final and crucial cost remains: Marginal Costs: Extra or additional cost of producing one additional unit of output… Total cost is $2500 to produce 5 tv’s $3000 to produce 6 tvs… What is the marginal cost of the additional (6 th ) unit? $500!

Let’s put this all together! We are going to manufacture TV's. Fixed costs: remain the same no matter how many tv’s we sell or don’t sell… The rent of our building that makes the tv’s. Variable costs: parts to make the tv, or to ship the tv… keep up with demand Total costs: rent + parts and shipping…

Business use 2 key measures of revenue: Total # of units sold manipulated by the average price per unit! 42 units of a product are sold at $8 each, the total revenue is ___? $ Marginal Change in total revenue (extra revenue) that results from selling 1 more unit of output.

Marginal Benefit We usually do something b/c we expect to achieve some benefit. We are concerned with the marginal benefit- The additional or extra benefit associated with an action. Once we define the marginal costs & the benefits of a decision, we can analyze the decision. To do this, economists create an economic model called a COST-BENEFIT ANALYSIS- Analysis requires you to compare marginal costs and marginal benefits of a decision…

Being an Economically Smart Citizen!: 3 terms to describe our economy! The US uses a market economy- economic system in which supply, demand and prices help people make decisions and use resources. Most economic decisions are made by people looking out for their own and their families’ self-interests! Can we afford this…do I NEED this

Capitalism :) A market economy is sometimes described as being based on Capitalism:(c=choice) System in which private citizens own most, if not all, of the means of production.

A market economy is also based on FREE ENTERPRISE: B/c business are allowed to compete for profit with a minimum of government interference. Generic, PS3 WE MAKE THE CHOICES!

Incentives: Rewards that are offered to make people take certain actions. Ex: Sales/Discounts Rational Choice: Choosing the alternative that has greatest value from among comparable- quality products