Economics  Is…  Definition The study of how people seek to satisfy their needs and wants by making choices

Needs  Food  Water  Shelter  Air  Love  Clothing  Transportation  Health Care  Education

Wants  Car  Job  Technology  Bigger  Better  Brighter  Newer

Scarcity  Limited quantities of a resource to meet unlimited wants and needs  WE MUST CHOOSE

Choices  Child  Adolescent  Adult  Rich  Poor

Allocation  To set aside resources for a specific function Macro Micro

Opportunity Cost/Benefit  The most desirable alternative given up as the result of a decision  The desired gain of making a decision

Opportunity Cost/Benefit BenefitCost New Shoes Speeding Fast food Sports Part-time job Lease a car College Ed.

Thinking at the Margin  Deciding whether to do or use one more unit of some resource

Production Possibility Frontier A B

Efficiency  Using resources to maximize the production of goods and services

Underutilization  Using fewer resources than an economy is capable of using

Vacation Destination  You will now participate in a “real life” decision-making simulation. Pretend you have saved $1000 for a Spring Break fling with your friends. Use your best allocation of your resources to get the most “bang for the buck.” Shop with 5 different travel agencies to create the best package. Think at the Margin.

Scarcity  Definition Micro Macro  Vacation Destination Simulation

Trade-off  An alternative sacrificed when a decision is made Your family The USA

Specialization  The concentration of the productive efforts on a limited number of activities Your family The USA

Key Economic Questions  All societies must answer…  What to produce?  How to produce?  For whom to produce? “Poop to Profits”

Economic Systems  Free Market – prices, distribution, wages, unhindered by government control  Free Enterprise (USA)  Socialist (China)  Command – production and investment are regulated by central authority

Reflections  Reflect on who makes the decisions about the use of resources, like how much crude oil will be converted to gasoline to be used in your car. Reflect  How could a Free Market encourage people to use more renewable sources of energy?  How would a Command Economy get people to convert to renewable sources?

US Free Enterprise  The US free enterprise system emphasizes the economic goals: Efficiency Freedom Innovation  Consumer sovereignty dictates: Prices Quantities Quality

Self-interest  One’s own personal gain  GREED IS GOOD GREED IS GOOD Best classes, best assignment Motivates you to learn on your own  Try something new  Work hard

Incentive  An expectation that encourages people to behave a certain way School rules Laws Taxes Sales Advertising

Competition  The struggle among producers for the dollars of consumers Rational Ignorance  Incentive make sense  We don’t know, or choose not to care Advertising Activity

Market  Arrangement that allows buyers and sellers to exchange things Factor Market Product Market

Production  Factors Land Labor Capital Entrepreneurship  Payments Rent Wages Interest Profits - Combining factor resources to create final goods and services.

Consumption  Determinants Income Attitude Substitute Complement  Price  Sales  Used instead of  Used together - Use of final goods and services

Circular Flow Model Firms Households Factors:L,L,C Payments:R,W,I Goods & Services Prices Product Market Factor Market