Economics 101

Economics  Is a Science that examines how goods and services are produced, sold, and used.  It involves how people, governments and businesses make choices about using limited resources to satisfy unlimited wants.  WHY?

Why Economics is Important to Understand  Understanding the role of economics in the buying decisions of consumers helps businesses make better plans and decisions.

Factors of Production LAND Natural Resources (Soil, Water, Minerals, Plants, Animals, Climate) LABOR Agricultural Workers Construction Workers Factory Workers Miners Professionals Service Workers CAPITAL Tools, Equipment, Machinery Buildings Vehicles & Transportation Systems Utilities ENTREPRENEURSHIP Business Owners

Scarcity “Scarcity is an economic principle stating that because of limited resources, an economic system cannot possibly produce all the goods and services that people want; therefore, choices must be made about how the limited resources will be used.” -Consumer Economics & Education, Glencoe, 2003

Opportunity Costs opportunity cost refers to what a person gives up when a decision is made. This cost, also called a trade-off, may involve one or more of your resources (time, money, and effort). personal opportunity costs may involve time, health, or energy. For example, time spent on studying usually means lost time for leisure or working. However, this trade-off may be appropriate since your learning and grades will likely improve. financial opportunity costs involve monetary values of decisions made. For example, the purchase of an item with money from your savings means you will no longer obtain interest on those funds.

Basic Economic Principles  People choose because of limited resources.  People’s choices involve costs.  People respond to incentives in predictable ways.  People create economic systems that influence individual choices and incentives.  People gain when they trade voluntarily  People’s choices have consequences that lie in the future

Economic Systems  An organized way in which a nation chooses to use the resources to create goods and services. TRADITIONAL ECONOMY Economic decisions are based on a society’s values, culture, and customs. Large Rural Populations Farming & Hunting Barter Economy Little to No Manufacturing Survival COMMAND ECONOMY The Government owns and controls all the factors of production, decides how much will be produced and sets the prices of goods and services. Citizens get equal share Jobs are available for everyone Gov. provides education, medical care, and housing. Citizens give up individual freedom

Economic Systems  An organized way in which a nation chooses to use the resources to create goods and services. MARKET ECONOMY Individuals are free to make their own economic decisions. Also known as a Free Enterprise Economy. Private Property Profit Economic Freedom Voluntary Exchange Competition Capitalism is an economic system where the economic resources are privately owned by individuals instead of the government. MIXED ECONOMY The government and individuals make decisions about economic resources. Most governments are mixed. Gov. departments handle different aspects of the economy (ex. National Defense, Law Enforcement, Roads etc.) Private businesses run with little Gov. involvement. Citizens are free to make own economic decisions.

Check For Understanding  What is the basic economic problem?  List four factors of production a nation uses to make goods and supply services for its population.  What are the four economic systems?  What are market forces?  Identify three market forces that impact business.

Market Forces  Economic factors that affect the price, demand, and availability of a good and service.  Market Forces include supply and demand, the profit motive, and competition.

Indiana Jones 

Demand  How much people want to purchase of a good given its price  Law of demand= as price goes down, quantity demanded goes up

Supply  How many goods are available for purchase at a given price  Law of supply: as price goes up, more goods will be supplied

Supply and Demand Terms  Equilibrium- The price and quantity at which supply and demand are equal  Shortage- when demand is greater than supply  Surplus- when supply is greater than demand

Shifts in Supply and Demand 

Shifts In Supply  Productivity  Technology  Subsidies  Weather  Taxes In Demand  Changes in taste and preference  Changes in income  Changes in expectations  Changes in the prices of related goods  Population size and composition

Shifts in Supply and Demand

Supply and Demand of Workers