Goal 7 Introduction to Economics

What is Economics? Economics: the study of how people seek to satisfy their needs and wants by making choices Economics: the study of how people seek to satisfy their needs and wants by making choices

THE FACTORS OF PRODUCTION GOAL 7: Economics

There are 4 Factors of Production: Land or Natural Resources Land or Natural Resources Capital Capital Labor Labor Entrepreneurship Entrepreneurship

Land or Natural Resources Materials that are NATURALLY MADE and transformed into something else Examples: Oil Timber Land Crops Natural gas Milk

2 Types of Natural Resources RENEWABLE – Can be replaced or renewed or recycled – ex: wood, water, crops NON-RENEWABLE – Once used, resource is gone – Ex: Oil, Natural Gas, Gold

LABOR PEOPLE who work to produce a good or service Example: – Construction worker – Teacher – Line cook

CAPITAL MAN MADE instruments that assist in making something else Examples: – Hammer – Robot – Book – Computer

Human Capital Investment in education or training for a laborer for more productive laborers

Entrepreneurs People who RISK time and money ($) to start their own business Examples: – Oprah – Ben & Jerry’s – Little girl selling Lemonade – Donald Trump

Needs v. Wants Need: something people need that is necessary for survival (ex: air, food, shelter) Need: something people need that is necessary for survival (ex: air, food, shelter) Want: an item we desire but that is not essential to survival Want: an item we desire but that is not essential to survival

Three Basic Economic Questions What good and services should be produced? – Should money go to schools or a new city park?? How should these goods and services be produced? How should these goods and services be produced? – How much of the product are we going to produce? For whom should these goods and services be produced? For whom should these goods and services be produced? – After goods and services have been produced, society must determine how goods and services should be distributed among members of society…use a price system in the US

Every CHOICE you make has a… Monetary cost: price you paid for a decision ($) Monetary cost: price you paid for a decision ($) Trade off: ALL of the alternative choices Trade off: ALL of the alternative choices Opportunity cost: the best alternative, your second choice Opportunity cost: the best alternative, your second choice

Scenario #1 Dondrick studied for his exam instead of watching American Idol or doing his laundry. Dondrick studied for his exam instead of watching American Idol or doing his laundry. Trade-offs: American Idol, laundry Monetary cost: none Opportunity cost: American Idol

Scenario #2 Iesha has decided to go to college instead of getting a full-time job or joining the Navy. Iesha has decided to go to college instead of getting a full-time job or joining the Navy. Trade-offs Job, Navy Monetary costs: Money paid for college Opportunit y cost: job

B’day gift, jacket Trade-offs: Price of the Jordans Monetary cost: B’day gift for mom Opportunity cost: Scenario #3 Michael bought a pair of Air Jordans instead of buying his mom a birthday gift or a new jacket for himself. Michael bought a pair of Air Jordans instead of buying his mom a birthday gift or a new jacket for himself.

Productivity

How does an assembly line increase a company’s profits? Divides up the tasks to make a product and allows a worker to specialize in a task to make it faster Divides up the tasks to make a product and allows a worker to specialize in a task to make it faster More product = more profit More product = more profit

Division of Labor Dividing up the tasks required to make a product. Dividing up the tasks required to make a product.

Specialization Giving a worker a specific task to complete Giving a worker a specific task to complete Worker becomes a professional in the task Worker becomes a professional in the task

Automation creating a product with the assistance of machinery creating a product with the assistance of machinery

Types of Workers Blue Collar: Blue Collar: – wage-earning workers who wear work clothes ex: mechanics, miners, maids White Collar: White Collar: – office and professional workers who do not wear a uniform. Ex: lawyer, teacher, doctor

Types of Workers Skilled workers: Skilled workers: – Workers who get special training to do their job, earn more for their education – Ex: mechanic, teacher, doctor Unskilled workers: Unskilled workers: – workers do not have any special training that allows them to earn more than a basic wage – Ex: fast food employee, cashier

What will happen to a company if they add too many factors of production? Law of diminishing returns Law of diminishing returns – At a certain point adding another factor of production will make a company less productive (lose $) Graph Graph – What do you think this would look like?

Law of Diminishing Returns The tendency for a continuing effort toward a particular goal to decline in effectiveness after a certain amount of success has been achieved. The tendency for a continuing effort toward a particular goal to decline in effectiveness after a certain amount of success has been achieved.

Supply and Demand Supply and Demand

How can comparative advantage influence what a company or country produces? Comparative advantage: a country, individual, or company can produce a product at a lower cost than a competitor Comparative advantage: a country, individual, or company can produce a product at a lower cost than a competitor Produce products for less money to make a greater profit Produce products for less money to make a greater profit

TYPES OF ECONOMIES

3 Basic Economic Questions What to produce? What to produce? How to produce? How to produce? For whom to produce? For whom to produce?

What is produced? What is produced? – Traditional items are produced according to custom How is it produced? How is it produced? – According to custom, no specialization or division of labor For whom is it produced? For whom is it produced? – For the local people Traditional Economy

Command / Planned Economy What is produced? What is produced? – Gov’t decides what they believe to be best for the whole country. How is it produced? How is it produced? – Gov’t owns companies, dictate how to make things. Use specialization and division of labor For whom is it produced? For whom is it produced? – Produce only what is needed for the country

Market Economy What is produced? What is produced? – Whatever sellers want to produce. Supply and demand are the main factors in decision making How is it produced? How is it produced? – Competition exists. Business is run for profit. Specialization, division of labor used. For whom is it produced? For whom is it produced? – Produce for whoever will buy in your country and throughout the world

Mixed Economy Most countries have mixed economies. They combine aspects of the 3 economies to make what is best for them. Most countries have mixed economies. They combine aspects of the 3 economies to make what is best for them. Ex: United States Ex: United States – mostly market (individuals buy and sell) – Some command (gov’t rules and restrictions) – Little traditional (Native American, Amish communities)