Basic Econ Concepts

What is Economics? Most people aren’t satisfied Constant competition w/ others The problem is that resources are scarce

Economics is the science of scarcity Scarcity- when our wants are greater than our limited resources We can’t have everything we desire, so we must make choices Economists study choices

Ex: We choose between buying jeans or shoes Businesses choose how many people to hire Governments choose how much to spend on welfare Economics- The study of how people satisfy unlimited & competing wants with the use of scarce resources

Needs & Wants Dealing w/ scarcity requires differentiating between needs & wants Needs- basic requirements for survival (food, clothing, shelter, etc) Want- way of expressing a need You NEED food, you WANT??? You NEED clothes, you WANT???

Since resources are scarce, everything we do has a cost Nothing is free Cut costs in one area, means raised cost in another Buy 2, get 1 free…Mhmmmmm

3 Econ Questions Because of scarcity, we have to make wise decisions What, How, & For Whom???

What to produce? Focus on military equipment or food Oil or Housing? Societies cant have everything people want, so they must decide WHAT to produce

HOW to produce? Mass production w/ lots of equipment & few workers? Less equipment & more workers? Technology saves $$$, reaches more people, but takes away jobs

FOR WHOM to produce??? Ex. If you produce housing, who are you making it for? Workers, professional people, government employees?

Key Economic Assumptions 1.Society’s wants are unlimited, but ALL resources are limited (scarcity) 2.Due to scarcity, choices must be made. Every choice has a cost (a trade-off) 3.Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” 4.Everyone acts rationally by comparing the costs and benefits of every choice

Scarcity vs Shortage Scarcity occurs at all times for all goods Shortages - when producers won’t/can’t offer goods or services at current prices Shortages are temporary watch?v=On9WRrFHVjYhttps:// watch?v=On9WRrFHVjY

Price vs Cost What’s the price? vs. How much does that cost? Price- Amount buyer/ consumer pays Cost- Amount seller pays to produce a good Investment= the money spent by BUSINESSES to improve their production (ex. Music industry)

Goods vs. Services Goods- physical objects that satisfy needs and wants 1. Consumer Goods- created for final use by individual 2. Capital Goods- manufactured goods used to produce other goods & services Services- actions or activities one person performs for another (teaching, cleaning, cooking)

The 4 Factors of Production Producing goods and services requires the use of resources ALL resources can be classified as one of the following 4 factors of production: Land, Labor, Capitol, Entreprenuership

Land - All natural resources used to produce goods and services Anything from “mother nature” Labor – People w/ their efforts, abilities, & skills

Capital- tools, equipment, machinery, etc., used in the production of goods & services 1. Physical Capital- human-made resources used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) 2. Human Capital- skills or knowledge gained by a worker through education and experience

Entrepreneurship- risk takers that combine the factors of production to create goods and services. Examples-Henry Ford, Bill Gates, Jay Z