Economics

What resources were used to produce this car?

Resources used to produce car How would you classify these?  Steel  Rubber  Glass  Car designer  Engineer  Factory workers  Supervisors  Plastic  Leather  Thread  Machines/industrial robots  Electricity  Factory building  Land for factory  Owner of company/CEO  Other workers  Wood for paneling

Economic Resources  Factors of Production  Natural Resources Land, rain, forests, minerals, etc.  Labor work  Capital Capital goods (tools, machinery, and buildings)  Entrepreneur Individuals who start a new business

Economic Choices  Economics  The study of how we make decisions in a world where resources are limited.  Need  Things we need for survival.  Want  Things we would like to have  Scarcity  Fundamental economic problem.  We don’t have enough resources  The Economic Questions  What to produce?  How to produce?  For whom to produce?

Being an Economically Smart Citizen  Understanding your role:  Market Economy: Type of economy US has. It is participatory  Capitalism: Citizens own most of the means of production.  Free Enterprise: businesses compete for profit with a minimum of govt interference.  You must stay informed.  Incentives: rewards offered to try to persuade people to take certain economic actions. Examples???

Features of Capitalism  Capitalism: an economic system in which private citizens own and use the factors of production to make a profit.  Free Enterprise: an economy in which competition is allowed to flourish with a minimum of gov’t interference  Consumer Sovereignty: the consumer is the ruler of the market  Private Property Rights: free to own and use our own property  Competition: struggle b/t buyers and sellers to get the best products at the lowest prices  Profit: money left over after all costs of productions have been paid.  Profit Motive: driving force behind free enterprise.  Voluntary Exchange: the act of buyers and sellers freely and willingly engaging in market transactions.

4 factors of Productions Posters  How does the entrepreneur make decisions about how much of a resource to use to make a product?  Which factor in your poster is the most important & why?  Which factors are the least important to production?  Which factors have the cheapest cost toward your production? Why?  The most expensive? Why?

Circular Flow of Economic Activity  Market: location that allows buyers and sellers to exchange  Factor Markets: where productive resources are bought and sold  Product Markets: where producers offer goods and services for sale.

Circular Flow Model

Basic Economic Decisions  Which goods & services should be produced and in what amounts?  How should goods & services be produced?  Who will get the goods & services that are produced?  Quantity: amount to be produced  Ex: farmer’s land, seeds, crops, labor, machinery  Technology  revolutionized production process

Activity!  Partner up with someone near you.  Ask each other the following questions and record your answers:  Suppose you have just bought 100 acres of land, what is the first economic question you should ask yourself?  Would you plant all or any of the acreage? One crop or more than one?  Will you use organic methods or conventional fertilizers & pesticides?  Will you do all the work yourself or hire help?  Will you rely more on workers or machinery?  Will you buy the farm machinery or rent  Will you manage the farm yourself or hire a business manager?

Trade-offs  Trade-offs  Exchanging one thing for the use of another  Opportunity Cost  What you cannot buy or do when you choose to do or buy one thing rather than another.  Examples:  Costs  Fixed Costs: expenses that are the same no matter how much is produced. Example:  Variable Costs: expense that change with the number produced. Example:  Marginal Costs: extra cost of producing one additional unit.  Marginal benefit: additional benefit associated with an action.

Cost Benefit Analysis  Economic model used to compare marginal costs and marginal benefits  You want to choose an action when the benefits are greater than the cost.

The Economy and You  Consumer Rights and Responsibilities  Consumerism: movement to educate buyers  Laws that protect consumers Examples:  Warranty: a promise made by a manufacturer or seller to repair or replace a product if it is faulty.  Your Role as a Consumer  Disposable Income: money after taxes  Discretionary Income: money after paying bills.  What are your goals???  Saving: money set aside for later use  Interest: payment when you lend your money.

Gross Domestic Product (GDP)  GDP: measure of the size of the economy.  Total dollar value of all FINAL goods and services  Does not count intermediate goods or used goods  Expressed in terms of money  Increase in GDP-economy is expanding  Decrease in GDP-economy is declining  Standard of Living:  Quality of life based on the possession of necessities and luxuries that make life easier.  Does not measure society’s overall health of the economy.

Productivity and Growth  Productivity: the measure of the amount of output produced by a given amount of input.  Specialization: Specialize in one good/service  Division of Labor: dividing the tasks of making a product.  Economic Interdependence: depending on others for the things we can’t provide ourselves.