Unit 1: Basic Economic Concepts “Econ, Econ” Econ 1

Economic Terminology Utility = Marginal = Satisfaction! Additional! Allocate =Distribute! 2

Economic Terminology 3 Scarcity vs. Shortages Price vs. Cost Investment Consumer Goods Capital Goods

Scarcity vs. Shortages Shortages occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary. Scarcity occurs at all times for all goods. Price vs. Cost What’s the price? vs. How much does that cost? Price= Amount buyer (or consumer) pays Cost= Amount seller pays to produce a good Investment Investment= the money spent by BUSINESSES to improve their production Ex: $1,000 new computer, $1 Million new factory 4

Services= actions or activities that one person performs for another (teaching, cleaning, cooking) Goods= physical objects that satisfy needs and wants Give examples… Consumer Goods- created for direct consumption (example: pizza) Capital Goods- created for indirect consumption (pizza oven, work computer, etc.) Goods used to make consumer goods Goods vs. Services 5

The 4 Factors of Production 6

The Four Factors of Production Entrepreneurship Capital Labor Land Producing goods and services requires the use of resources-!. ALL resources can be classified as one of the following four factors of production: 7

Land = All natural resources that are used to produce goods and services. Anything that comes from “mother nature.” (Water, Sun, Plants, Oil, Trees, Stone, Animals, etc.) The Four Factors of Production Labor = Any effort a person devotes to a task for which that person is paid. (manual laborers, lawyers, doctors, teachers, waiters, etc.) 8

Two Types of Capital: 1. Physical Capital- Any human-made resource that is used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) 2. Human Capital- Any skills or knowledge gained by a worker through education and experience (college degrees, etc.) The Four Factors of Production 9

Entrepreneurship= ambitious leaders that combine the other factors of production to create goods and services. Examples-Steve Jobs, Bill Gates, Inventors, Store Owners, etc. The Four Factors of Production Entrepreneurs: Take risks So they can obtain _________. Profit= Revenue - Costs 10

The Factors of Production 11

The Four Factors of Production You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. What other Factors will be used to make your pizza? Classify the Factors of Production in the following scenario:

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Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going to Disneyland Economists look at the EXPLICIT COSTS and the IMPLICIT COSTS. Implicit costs are the opportunity costs such as lost time and lost income. The things I could have been doing Ex: Kobe Bryant leaves the NBA to open a pizza shop. 14

Opportunity cost 15