Unit 1 – Fundamentals of Economics

What is Economics? Economics can be looked at in a couple of essential ways. –Study of Behavior Economics can be used as a Social Science, to attempt to answer why people do what they do, and to predict behavior –Finding answers to fundamental questions Any society needs to answer some fundamental questions in order to function, such as how do we distribute food to society?

Scarcity Defining axiom of economics –There exists a limited quantity of resources to meet unlimited needs or wants A Need is something we must have to survive (food, clothing, shelter) A Want is something that we would like to have, but is not necessary Example – everyone wants a house, but there is not enough land (it is also used for other essential things like farming, and not all land is readily usable for homes), so many people rent instead. Scarcity is the idea that there is not enough of everything for everyone

What do we make? (Guns or Butter?) So, what do we make with scarce resources? Since we cannot make everything, we need to decide what we will make. Should we make weapons, or consumer goods, and who decides? –Does the government decide? –Do we vote on it? –Whatever will sell for the most? –Viagra pills, or a cure for AIDS?

How do we make it? Just as important as what, is how. Do we go for the quickest possible construction, no matter what he consequences are, or do we move more slowly and carefully, even though it might take a long time? –Quick and dirty? –Slow and careful? –Ford or Ferrari?

Who gets it? Perhaps the question that most people focus on, and is more more personal than the other two questions, is who gets the products we all make? This question has lead to strikes, riots, and even revolutions. –Everyone? –Some people? –WASPs? –Whoever can pay $$$?

Factors of Production Land –Agriculture, mining, logging, water (rivers), housing, parks, buildings, office space Labor –Educated vs. non-educated, skilled vs. non-skilled, high-wage vs. low- wage, domestic vs. foreign Capital –Money, equipment, assets, products, raw materials Entrepreneur-ship –Risk taking, leadership, vision

Goods and Services Goods and Services are the products that come from the factors of production that we buy from other people and companies. The good could be an ice cream cone, and a service could be mowing your lawn. By the book, capitalists supply goods and services to those who demand it.