 Fundamental Economic Concepts

 Lesson Two Basic Economic Concepts

 What are Goods? o Anything useful and tangible (Can actually touch) o i.e. – car, book, clothing, etc. o Some goods are intended for final use by us – these are called consumer goods Durable vs. nondurable goods  Services o Any work that is performed for someone  Consumers o When we use our goods and services to satisfy our wants and needs.

 Everything has value – the worth that can be expressed in dollars and cents  Paradox of Value o Necessities vs. non necessities and their worth  Utility o In order for something to have value it must have utility, or the capacity to be useful and provide satisfaction o Not measurable Varies from person to person  Value and Wealth o The emphasis of monetary value is important to economists. o The value of something in dollars and cents is easily understood

 Wealth o Can be individual or national o The accumulation of products tangible, scarce, useful, and transferable to another person is wealth o Services are not considered wealth o Wealth we generate is made possible by the circular flow of economics o Key feature = Markets – a location where buyers and sellers can exchange a certain product. Adam Smith, who wrote “The Wealth of Nations” in 1776 said “if a country’s material possessions were taken away, its people, through their efforts and skills, could restore these possessions. On the other hand, if a country’s people were taken away, its wealth would deteriorate.”

Factor Markets Product Markets Individuals Businesses Income from resources Payments for resources Business income Consumer spending Goods/ services Buy productive resources Four factors of production

 ACTIVITY  Working in your groups, determine the meaning of the circular flow diagram.  One person will write down your groups thoughts and comments.  In conclusion, you must answer this question: o As a consumer, what role do you play in the circular flow of economic activity?

WWhat do you think happens when the circular flow becomes larger?? WWhen our nations productivity increases over time we see economic growth oWoWhat is productivity? oToThe measure of the amount of goods and services produced within a given amount time with a given amount of resources. Only increase though when more can be produced with the same amount of resources.

 Define Human Capital? o The sum of peoples skills, abilities, andlth, knowledge, and motivation o Question – How can the government or Business invest in Human Capital? Government – Providing education and healthcare Business – training or other programs that improve the skills of their workers.

 Division of Labor and Specialization o Dividing a task into different parts can cause the task to be completed more efficiently o Deciding who can do things better, or specialize, is also more efficient o Examples????  Economic Interdependence o We are as dependent on other countries as they are on us o How can this be good? Gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.

 Activity o Write about ways that you are dependent on others and how others are dependent on you. o Circle which examples show economic interdependence and explain why?

 Lesson Three Economic Choices and Decision Making

 Trade-Offs o -Alternate choices o Decision making grid Forces you to consider alternatives  Opportunity Costs o Cost of the next-best alternative o Everything else is a trade-off

BlankSan FranciscoLos AngelesSeattle Climate Cost of living Number of game companies Crime rate It's a pleasant-looking city Distance from family

Cars Clothing

 When the production of one item increases, the other item decreases

 Economic Models o A simplified equation, graph, or figure showing how something works. o All economic models are based on assumptions – things we think are true o Can be revised o If assumptions are correct, we can use again o If assumptions are wrong, chart can be changed to make better predictions.

 What is it? o A way of comparing the costs of an action to the benefits received o As a group, describe a scenario in which you would use a cost- benefit analysis to determine worth or value?????