What is Economics?

I. What is Economics? A. Definition: Economics is a social science that deals with how consumers, producers, and societies choose among the alternative uses of scarce resources in the process of producing, exchanging, and consuming goods and services

II. What do we mean by scarce resources? A. Scarcity refers to the finite quantity of resources that are available to meet society’s needs

B. What are resources? 1. 3 kinds a. Natural resources (land) land water minerals biological

b. Human resources (labor) c. Manufactured resources (capital) machines & equipment structures

C. Because resources are scarce we have to make choices about how best to use them 1. Choice has a time dimension a. Going to college today increases earning potential in the future

2. Choice has an opportunity cost a. Interest that could have been earned from money spent on a car b. Salary that could have been earned at a job instead of going to college

3. Choice leads to specialization a. Choose to use resources for what they are best suited for b. Teacher pays someone to provide medical advise, work on car, etc. c. U.S. exports grains and imports coffee

III. 2 branches of economics A. Microeconomics 1. Focuses on the economic actions of individuals or specific groups

B. Macroeconomics 1. Focuses on aggregates, totals, big groups a. Wealth of a whole country b. Policies that effect the nation growth of the economy inflation unemployment monetary policy fiscal policy

IV. Alternative economic systems A. Definition of an economic system: “The institutional means by which resources are used to satisfy human desires.”

1. Institutions a. Laws ex: protecting private property & enforcing contracts b. Habits & customs ex: businesses display their prices & consumers usually pay that price c. Ethics ex: bureaucrats give you a license for a business without being paid a bribe

B. Capitalism 1. A free market economic system in which individuals own resources & have the right to employ their time & resources however they choose, with minimal legal constraints from government.

C. Socialism 1. A centrally planned economic system in which resources are generally collectively owned & government decides how resources are to be used.

D. Mixed economic system 1. An economic system in which some markets are not entirely free to determine price. Government may control selected markets & a welfare system may influence the labor market.

2. The U.S. is mostly a capitalist system with several aspects of a mixed economy. a. Minimum wage law controls minimum price paid for labor b. Prices controlled in some ag and utility markets