Chapter 1 What is economics?

Chapter 1 Economics – study of the choices that consumers and producers make. Economics – study of the choices that consumers and producers make. Capitalism – United States Economic System. Laissez Faire – Free Enterprise – Private Property- Capitalism – United States Economic System. Laissez Faire – Free Enterprise – Private Property- Adam Smith – the “ Wealth of Nations ” Adam Smith – the “ Wealth of Nations ”

Scarcity The Fundamental Economic Problem Unlimited needs and wants with limited resources = scarcity which leads to choices for producers.

4 factors of Production Human Resources Capital Resources Natural Resources Entrepreneurship

Goods and Services Goods—tangible items Services—not physical *both require scarce resources to produce and satisfy human wants

Assignment 1. Define the following terms: Scarcity Productive resources Economics Human resources Labor Entrepreneur Natural resources Capital goods Good Services 2. Go to page 9, 1.1 Assessment, answer 1,4, and 6

What to Produce? How to Produce? For whom to Produce for? What to Produce? How to Produce? For whom to Produce for?

Trade Offs and Opportunity Costs Alternatives –giving up one thing for the use of another The next best alternative Example – what value does a person lose if they decide to do one thing versus the other

The Production Possibilities Frontier - PPC tanks sailboats

PPC continued … Trade offs and opportunity costs The costs of idle resources? Economic growth As a entrepreneur – you must decide which product is in more demand and concentrate your production efforts on the item in more demand by the public.

Forms of exchange Barter - trade – ancient societies Money – measure of value Credit – borrowed money

Journal 2 Is it likely you will become successful or even rich? Is this important to you? What choices for your future might you make differently if you thought you had little chance of success? How might you and the economy as a whole suffer as a result of your pessimism?

Chapter 2 2.1, 2.3 Economic Systems

Types of Economic studies Microeconomics Focuses on yours and others economic behaviors Focuses on the factors that influence individual economic choices i.e., the smaller picture the individual pieces of the economic puzzle Macroeconomics Focuses on the performance of the economy as a whole, especially the national economy. Fits all the pieces together looks at the big picture

Types of Economies

1. Traditional Economies Based on custom and tradition Products produced and distributed among the groups Only items that are necessary are produced Rarely used today

Command Economy Government officials make decisions Planned economies Ancient system – not seen today

Market Economies Individuals hold control and answer the three basic economic questions Self-interest System is set up to reward people – incentives exist

Mixed Economies Authoritarian / Communism – government controls all factors of production Example – U.S.S.R. Capitalism – government involvement is limited Example – U.S.A. Democratic Socialism – government ownership is limited to key industries Example - Canada

Five features of the U.S. Free Enterprise System Free enterprise – an economic system in which business can be conducted freely with limited gov. involvement. Private property – people have the right to own private property and enter into contracts. Engage in economic competition! Make decisions based on self-interest! Participate in the economy with limited government involvement!

Quiz 1 1. What are the three economic questions? 2. _______ focuses on the performances of the economy as a whole. 3. _______ looks at the smaller pieces of the economy. 4. _________ an economic system in which business can be conducted freely with limited gov. involvement. 5. _________ the fundamental economic problem. 6. _________ the study of choices consumers and produces make. 7.__________ the American economic system. 8. _________ economic belief that the government should leave the economy alone. 9. __________ political party that believes in the above. 10. _________wrote “Wealth of Nations”

Circular Flow Model Types of exchanges : Households and Government -households provide resources to the government for income -households pay taxes to the government for services Households and Businesses -households provide resources to businesses for income -households pay businesses for products

Circular Flow Model Cont. Businesses and Government – -businesses provide products to the government for money – -businesses pay taxes to the government for service

Key terms : Utility -usefulness of a product - The utility of a certain good can vary from person to person. Self – sufficiency – when you can fulfill all your needs with no outside influence Interdependence – when one area or region is affected because of the events and incidences that occurred in another region.

Key Terms cont. Productivity – level of output that results from a given level of input Efficiency – the use of the smallest amount of resources to produce the greatest amount of output Division of labor – assigning a small number of tasks to each worker Specialization – the focus on one activity

2.1 Comparative Advantage

Absolute Advantage v. Law of comparative advantage Absolute advantage – Being able to do something using fewer resources than other producers require. – No need to cooperate Not the best guide for deciding what to do. Law of Comparative Advantage – The worker with the lower opportunity cost of producing a particular output should specialize in that output Specialization Occurs when individual workers focus on single tasks, enabling each one to be more efficient and productive

Specialization Absolute advantage focuses on which of you uses the fewest resources Comparative advantage focuses on what else those resources could have produced – That is, the opportunity cost of those resources – Indicates who should do what (specialize)

Specialization Resources are allocated most efficiently across the country and around the world when production and trade conform to the law of comparative advantage

Specialization Based on comparative advantage Did you make anything that are wearing? Cotton Shirt Farmer grows cotton, someone spun cotton to thread, someone wove thread into fabric, Sewed fabric to shirt, store sold it

Division of Labor Division of labor Each worker specializes in a separate task Allows the group to produce much more 1. task assigned to ability and preference 2. repetitive tasks makes perfection 3. allows for new labor saving techniques

Homework Assignment Chapter 1 and 2 Review economic terms Write the word and definitions down P. 29 and 57