Economics “The Basics of Economics”

Part I: The Basic Terms of Economics

People in Economics ► In any society, there are two major players in economics.  producer – maker and/or seller of goods and services  consumer – buyer and/or user of goods and services (everyone is a consumer)

Needs vs. Wants ► needs – something humans require for survival (food, water, clothing, shelter) ► wants – something desired, beyond what is required for survival (IPOD, cell phone)

Goods vs. Services ► good – any manufactured product product  ex. food, shoes, or TVs ► service – work done for others  ex. police, restaurants, doctors, beauticians, teachers

Scarcity ► a shortage of goods or services  In any society, there is never enough of everything to satisfy everyone’s wants and needs.  Unlimited wants and limited resources force choices.  Individuals, businesses, and governments all make choices due to scarcity.

Scarcity in Developed Nations ► insufficient domestic petroleum ► lack of raw materials ► unfavorable balance of trade (more imports than exports)

Scarcity in Underdeveloped Nations ► not enough farmland, water, and food ► lack of medical personnel, supplies, and facilities ► lack of transportation for goods ► lack of building materials ► lack of employment ► lack of capital for investment ► lack of education

Allocation of Resources ► deciding who gets what resource because people’s wants exceed the available resource resulting in scarcity ► opportunity cost – something that is given something that is given up when something else up when something else is chosen is chosen

Economic Decisions ► Producers in an economy must make basic economic decisions.  What to produce?  How to produce?  For whom to produce?

Law of Supply and Demand ► supply – the amount of a good or service available for sale in a market ► demand – the amount of a good or service wanted in a market ► When supply is up and demand is down, prices go down. prices go down. ► When supply is down and demand is up, and demand is up, prices go up. prices go up.

Part II Resources: The Factors of Production

Productive Resources ► availability of these impacts the economic decisions ► four major categories:  natural  human  capital (goods and human)  entrepreneurship

Natural Resources ► includes the sun, wind, water, oceans, rivers, gifts of nature, and mineral resources available in an area

Human Resources ► labor  people with talent, knowledge, and skills

Capital Goods ► Capital goods are the tools.  These are things that have been produced by past efforts of people that are used in production of goods and services.  Examples include: tools, equipment, buildings, machinery, and factories. ► This is not money!  Money is NOT a resource; money is a means or medium of exchange.  Money is not worth anything by itself. Its value is for what we can exchange the money.

Human Capital Human Capital ► Investing in human capital involves training & education. ► If you improve people skills, then they will be more productive. ► People with more education will earn more. ► Teachers are investing in human capital.

Entrepreneurship ► ability and willingness to see an opportunity to make a profit by making and selling a good or service - the willing- ness to risk capital ► entrepreneur – person who risks capital to produce a good or service ► investor – person who provides capital to an entrepreneur ► middleman – a trader who buys goods from the producer and, in turn, sells the goods to another seller or sells directly to the consumer for profit (involves mark up in price to consumer at each exchange)

Opportunity Recognition ► Entrepreneurs must recognize an unmet demand in the economy and try to meet it. ► This involves risk taking.  China – people grow rice in flooded fields, in which they also raise fish to sell  Truett Cathy - Chick-fil-a

Technology ► Advancements in technology have led to higher productivity and a higher standard of living.

Examples of Technology ► the wheel ► irrigation ► hydroelectric power ► automobiles ► telephones ► computers

Economics

PERSONAL FINANCE ► Financial planning for individuals. Generally, it involves analyzing their current financial position, predicting short-term and long- term needs, and recommending a financial strategy. The financial strategy involves setting a budget and planning for future needs and wants.

INCOME ► The monetary payment received for good or services, or from other sources, as rents or investments. ► Income is money that literally “comes in” on a regular basis. For most people, income is something that comes from getting paid for doing work. Some people, however, are able to live off from their savings or investments. Income may also come from gifts or from selling something.

Spending ► to pay out, disburse, or expend; dispose of (money, wealth, resources, etc.): ► Money is needed for food, shelter, and clothing. Of course, people spend money on things they want, too. ► Things that we want but do not need are called luxuries. ► The best way to spend money wisely is to make a BUDGET, which is a plan for how much money will be spent on each type of item that person must buy.

SAVINGS ► 1 Goal of BUDGETING is to save money. ► Saving allows people to plan to buy some expensive in the future. ► Many different ways to save money. EX. Piggy bank, not necessarily safe. ► Best way of saving money is to put it in bank. ► By saving in a bank, your money can earn interest. Interest is a charge that the bank pays you to use your money.

CREDIT ► When savings and income are not enough to pay for what a person wants or needs, he or she can use credit. ► Credit is money that you borrow from a bank. ► When you let the bank use your money, that bank pays you interest. ► When you use the bank’s money, you then must pay the bank interest ► There are many different types of CREDIT, credit cards, home loans, and car loans. ► Anytime money is owed, credit is extended. ► The key to personal finance is never to borrow more than you can pay off in a reasonable amount of time.

Investment ► the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. ► Investing is spending money in the hope of earning more money than is spent. ► EX. Collectable trading cards. A card that is bought for a $1 may someday be worth $10. A return of $9- which is 900%

INVESTMENT ► the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. ► Investing is spending money in the hope of earning more money than is spent. ► EX. Collectable trading cards. A card that is bought for a $1 may someday be worth $10. A return of $9- which is 900% ► EX. Honus Wagoner card in 1909 cost less than.50 cents this year it sold for 2.35 million dollars.