1. Introduction to Economics

3. Making Economic Choices
We all have wants and needs but no one can have everything. This is the first lesson of economics: study of how people choose to use scarce resources to satisfy their needs: a basic requirement for survival and wants: a way of expressing or communication a need
Microeconomics: study of individual parts on an economy
Macroeconomics: study of an economy as a whole

4. What are goods and services?
Goods: are things of value that can be seen or touched (tangible) to satisfy needs and wants ( exs. shoes and bikes)
Durable Goods: goods that do not need to be replaced every year
Non-durable Goods: goods that need to be replaced

5. Goods and Services must be made or produced
Services: useful work that cannot be seen or touched (intangible) (ex. A waitress who brings a meal to your table is performing a service)
Goods and Services must be made or produced
The business owners who make the disks, shoes and bikes are producers. Doctors, barbers and bus drivers are also producers. The users of goods and services are consumers.
Bartlett’s Bistro
Service
Consumers
Producers
Goods

6. What are economic resources?
Things that go into the making of goods and services
Three kinds of resources:
Natural resources: things provided by the world around us.

7. Resources
Human resources: people who put everything together to make goods and services.
Capital: machines, tools and buildings used in the production of goods and services.

8. Why we must make economic choices?
Scarcity: there is not enough of everything to go around all resources are limited
Trade-off: (economic choice) goods or services that must be given up in order to buy another one
This
That
.50
FOR

9. Societies Must Decide 1. What goods and services to produce?
2. How goods and services will be produced?
3. And who should receive these goods and services?

10. What is the cost of every choice?
Opportunity Cost: the cost of the best next alternative use of time and money when choosing to do one thing rather than another.
Ex. Suppose Congress votes $2 billion for projects to clean up polluted rivers. The opportunity cost of its vote is the next best alternative use of those same tax dollars. Congress could have voted for increased spending on space research. Then the opportunity cost of clean rivers would be fewer space flights.

11. Another Example…
Ex. If you decide to go to college after high school vs. someone who gets a job after high school
College- pay for books, tuition, transportation, and other fees.
Work- get a check at least 2 a month for the work you do
College- will get paid 2x as much as a high school grad after college
Opportunity Cost- also takes into account all the possible discomforts and inconveniences linked to the choices made

12. Opportunity Cost

14. Four Factors of Production
CELL
Four Factors of Production
Capital
Entrepreneurship
Land /
Natural Resources
Labor

15. Four Factors of Production
Capital - A factor of production used by labor in making products such as tools, factories and machines
Entrepreneurship - The function of combining and organizing natural resources, capital goods and labor; assuming the risks of business failure; and providing the creativity and managerial skills necessary for production to take place.

16. Four Factors of Production
Land/Natural Resources Productive resources that are provided by nature exs. air, land, water & coal
Labor
Any form of human effort exerted in production.

17. Cost Benefit Analysis

18. Marginal Revenue- the change in total revenue that results from selling one more unit of output
Marginal Benefit- The additional or extra benefit of an action
Cost-benefit analysis- an economic model that requires you to compare the marginal costs and marginal benefits of a decision
If the costs outweigh the benefits we should reject the chosen option

19. Different Kinds of Costs
All businesses have costs, but not all costs are the same
Fixed- expenses are the same no matter how many units are produced
Variable- Change with the number of products produced (Wages and raw materials). Increase as production grows
Total- Fixed Costs + Variable Costs= Fixed Costs. Average total costs- Total Costs/ Quantity Produced
Marginal Costs- extra, or additional cost of producing one additional unit of output

20. Cost-Benefit Analysis
The cost-benefit analysis can be used to answer 2 of the 3 basic questions of economics: What to produce and for Whom.

21. Types of Economies There are 4 types of economic systems:
In a market economy, the 3 basic questions of economics are answered based on the concepts of supply and demand
Capitalism is another name for this system
The US economy is known as Capitalism - private citizens own and use the factors of production in order to seek a profit
Free Enterprise is another term used to describe the American economy

23. The profit motive drives the decisions of this type of economy
Competition is allowed to flourish with little or no government interference
Laissez- faire- little or no government interference
In this economy PRIVATE CITIZENS, NOT THE GOVERNMENT OWN THE 4 FACTORS OF PRODUCTION
The profit motive drives the decisions of this type of economy
Citizens are considered to have consumer sovereignty
They determine what products are to be made, based on the products that they demand

24. Pure Market Economies???? There are NONE!
There are NO pure market economies in the world today
Countries that do have some form of a market economy have the largest per capita GDP, which can compare one nation’s economy with another (the total GDP- the total dollar value of all final goods and services produced within the country in a year- divided by the population)

25. Command Economy
The opposite of the market system is the command economy (communism)
In a pure command economy, the individual has little, if any, influence over answering the basic questions of economics
Under this system these major decisions are made by the government
They tell producers WHAT TO PRODUCE, HOW TO PRODUCE IT, AND FOR WHOM it is to be produced for

27. KARL MARX Karl Marx came up with the idea of socialism
The factors of production should be owned by society, through the government
He interpreted human history as a clash between the workers and the capitalists
In pure communism, the workers will eventually own all the factors of the government
No pure communist government exists today

28. Mixed Economy
The US and every other capitalist society today has a mixed economy
In this economy, elements of market and command economies exist
Private ownership of property and individual decision making are combined with government regulations and social welfare programs
The government also plays a role with externalities

30. Changes…
Many countries today are trying to change from command economies to mixed or market economies, like Russia and China
Other countries called developing countries are doing the same
They have usually have traditional economies- where the questions of economics are answered based on customs or traditions
These customs are passed down from generation to generation
Most of these nations are small, and there are few of them in the world today