What is Economics?

Economics Economics = Study of how individuals, businesses, and government must make choices to satisfy their wants and needs Making CHOICES is what economics is all about! Two categories of Economics Microeconomics = small scale – study of individuals, a business, etc Macroeconomics = large scale – study of overall big picture. Country as a whole or global

Making Choices Why is the term CHOICE used? Why must we make choices? Scarcity – limited resources available to meet unlimited wants and needs. There is NOT an unlimited supply of ANYTHING. Eventually the resource or “Factors of Production” would run out. All resources are limited PERIOD! Shortages – are not the same thing. Shortages are temporary! Ex: El Nopal ran out of Cinco De Mayo shirts at 7. We still have other shirts, but there was a shortage in that particular one

Want v. Need Want = something you desire, but is not necessary Need = something you must have in order to survive Economics involves RATIONAL thinking – meaning Smart decision making! You may want that new pair of shoes for $150, but if you buy them you cannot afford groceries (need). Was that a rational choice? NO

Goods & Services Goods = something tangible. Something you take with you. Ex: Shoes, food, house, car, clothes, etc Service = usually something non-tangible. Involves some type of action usually. Ex: Massage, hairstyle, healthcare, mowing the grass, etc.

Making Choices Making choices involves Trade-Offs & Opportunity Costs Trade – Off = Making a CHOICE between two alternatives Opportunity Cost = The NEXT BEST alternative you GIVE UP when making a decision/choice Opportunity Cost is not about “paying” for something in monetary terms. It can be time, grades, practice, clothes, etc that it cost you when you make a decision

Trade-Offs v. Opportunity Cost Is the following…. Choosing pizza today at lunch instead of tacos This is simply a trade-off.. You chose one over the other Not having the satisfaction of the taco when you chose the pizza. This is an opportunity cost.. You gave up the satisfaction of the taco for the pizza, so it cost you the taco.

Opportunity Cost or Trade-Off You choose to skip lunch instead of eating The good grade after you decided not to study The flat tummy after you were lazy all summer You went to Wendy’s after school instead of McDonald’s The satisfaction you get from Dr. Pepper when you drank water instead

Factors of Production Factors of Production – the resources that go into making a good or service. Everything involved leading up to the final product or service. Four Factors of Production 1. Land = any NATURAL resources used to make a good or services (Ex: water, farm land, coal) 2. Labor = individuals who do a job and are paid in return 3. Capital = (2 types human & physical) – Physical Capital = human made objects used to create other goods/services ( Ex: tools, buildings, computers, machines) – Human Capital = knowledgeable or skilled workers

Entrepreneur The entrepreneur is sometimes called the fourth Factor of Production Entrepreneur - This is the RISK taker who COMBINES the factors in order to create a good or a services The owner or person able to execute someone’s innovative ideas.