2. CHAPTER ONE What is Economics?

3. n Definition n The study of choices people make to satisfy needs and wants. 1

4. Greatest Freedom? n Choice is the greatest freedom in our economy ! 2

5. Wants –Something that you believe will improve your existence 3 Needs Something that is necessary for survival Water-Shelter-Food

6. Two Categories of Economics

7. n Microeconomics-the study of individual components of economics n example: Exxon- one company 4

8. n Macroeconomics- the study of the behavior of entire economies n example: unemployment in the U.S.

9. Who Makes Economic Decisions? n 1. Consumers-Da Buyers n 2. Producers- Da Sellers 5

10. How do you Make Economic Decisions? For needs and wants such as…. n Goods ( Tangible) and Services (Intangible) n Resources 6

11. Resources…. n Anything that people use to make or obtain what they need or want 7

12. Factors of Production n 1. Natural resources n 2. Human resources n 3. Capital resources 8

13. Factor of Production n 1. Natural resources – Oil – Water – Land

14. Factor of Production n Human resources – Labor – Talent – Ideas

15. Factors of Production n Capital resources – investment – consumer goods – capital good – technology

16. Entrepreneurship n Taking a risk to make a profit 9

17. n Goal - develop combination of the 3 other factors of production to create something of value to make a financial gain or profit n Lumber + Labor + Nail Gun = House

18. Scarcity n The most basic problem of economics n forces people to make decisions about how to use resources effectively. 10

19. Scarcity n People respond to scarcity by allocating or distributing resources in order to satisfy the greatest number of needs and wants.

20. Three basic economic questions

21. What to produce n Individuals, companies or countries must decide what good or service to provide for the consumer 11

22. Example n The seller identifies a need for a cutting edge clothing store.

23. How to Produce n A seller must decide how their product will be created or take shape.

24. Example n The seller decides to offer the most popular clothing lines.

25. For Whom to Produce n A seller must decide who will be buying their product

26. Example n The producer identifies a market of 12-26 year old males.

27. Trade-off n When a resource is used to make one product it cannot be used to make another 12

28. Opportunity Cost n The value of the next best alternative given up to obtain that product 13

29. Example n 5 years of wages @ $15,000 per year n 5 years of Poly @ $10,000 per year n Total cost of Poly = $50,000 n Opportunity cost = $75,000

30. EXCHANGE n 3 Forms of Exchange –Barter –Money –Credit 14

31. BARTER n EXCHANGING ONE SET OF GOODS OR SERVICES FOR ANOTHER – TRADES – SWAPPING SKILLS

32. MONEY n ITEM READILY ACCEPTED BY PEOPLE IN RETURN FOR GOODS AND SERVICES

33. CREDIT n METHOD BY WHICH CONSUMERS MAY USE ITEMS BEFORE COMPLETING PAYMENT

34. Forms of Money 1. Coins and Paper Money 2. Demand Deposits 3. Near Money 15

35. Utility- the usefulness value of a product or service. n Form Utility n Place Utility n Time Utility n Service Utility 16

36. Form Utility n CREATING WEALTH BY CHANGING THE FORM –EX: WHEAT TURNED INTO BREAD

37. Place Utility n WEALTH CREATED BY MOVING A GOOD FROM ONE PLACE TO ANOTHER –EX:SELLING SODAS AT A CONCERT

38. Time Utility n CREATING WEALTH BY MAKING A GOOD AVAILABLE AT A CERTAIN POINT IN TIME –EX: SELLING A “HOT” TOY AFTER THE RELEASE OF A MOVIE

39. Service Utility n PROVIDING A SKILL –EX: A LAWYER DEFENDS YOU IN COURT

40. Review Items n Consumer n Producer n Tangible n Intangible n Goods n Services n Factors of Production n Natural Resources n Human Resources n Capital Resources n Entrepreneur n Choice n Scarcity n Trade-Off n Opportunity Cost n Macroeconomics n Microeconomics

41. Review Items n 3 Questions of Economics n Needs n Wants n Specialization n Utilities n Service v Manufacturing

42. Chapter 2 Types of Economic Systems

43. Disclaimer n No economy is pure because all economies are a mixture of the three types. 17

44. Types n Traditional n Command n Market n Mixed 18

45. Traditional n Based on customs and traditions such as rituals, beliefs, and religion.

46. Example: n Some tribe eats undercooked Pork n Tribe members keel over n Pork outlawed n Eventually entire religious groups refuse to eat pork

47. Who? n Ancient agricultural tribes of Africa and Asia n Aborigines of Australia

48. Command n relies on a strong central government to make all the basic economic questions

49. Example: n There are only enough resources to provide the people with either missiles or bathtubs. n The government decides to build missiles to protect the people. n The people are safe but they stink to high heaven.

50. Who? n Countries run by dictators n Cuba-North Korea- Sudan

51. Market n Individuals answer the three basic economic decisions

52. Example: n You decide that the government is doing a poor job of delivering parcels. n You begin a business because you feel that you can make $ providing a better service. n Federal Express is born !

53. Who? n Most of the industrialized countries of the World

54. Mixed n A combination of the three other forms

55. Example: n The USA has all three types n Traditional- To wear a tux to a formal n Command- To Pay your taxes n Market- To begin a private business

56. Who? n Most of the industrialized countries of the World

57. Types of Mixed Economies n authoritarian socialism n democratic socialism n capitalism 19

58. Authoritarian Socialism n Also known as Communism n Government owns or controls nearly all the factors of production n Example: Cuba

59. Democratic Socialism n Government owns the key industries –Telephone –Electrical Utilities –Ex: Sweden-France

60. Capitalism n Individuals own the factors of production – Natural resources, etc. n Closest to market economy n Ex: USA-Japan-Mexico

61. The Invisible Hand n Theory of Adam Smith n individuals do what they need to do in order to fulfill their needs and wants n also called self-interests 20

62. Free Enterprise n system under which business can be carried on with little government intervention 21

63. Features of Free Enterprise

64. Private property n own as much as you like n buy and sell when you want

65. Entering contracts n oral or written n legally binding

66. Individual choices n producers make what they want n consumers buy what they want n laborers work where they want

67. Competition n encourages producers to: – improve products – develop new products

68. Self-interest n impulse that encourages people to fulfill their needs and wants n may increase benefits for others

69. Limited government n government regulates the economy with law and taxes but doesn’t make many production decisions

70. Ch. 1 & 2 Review

71. Definition

72. Freedom?

73. Needs & Wants

74. Categories

75. The Consumer

76. Goods & Services

77. Resources

78. Factors of Production

79. Entrepreneur

80. Basic Problem

81. What How For Whom

82. Trade-off

83. Opportunity Cost

84. Forms of Exchange

85. Utility Types

86. Let us Testify!

87. Types of Economy

88. Types of mixed Economies

89. Invisible Hand

90. Free Enterprise