1. What is Economics?

2. Critical Thought
Do you think the study of economics is worth your time and effort?
Most adults want to be involved in economic policy in some way or another, but fail to fully understand and grasp the basic concepts.

3. Scarcity and the Science of Economics
Ever notice how few people are satisfied with the things they have?
Bigger homes
Expensive cars
Exotic trips
Others?

4. Scarcity and the Science of Economics
Fundamental economic problem facing all societies is scarcity.
Condition that results from society not having enough resources to produce all the things people would like to have.
Affects almost every decision we make.

5. Economics
The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources.

6. Economics Often talks about people’s needs and wants.
Range of things represented by the term want is much broader than that represented by the term need.
How so?

7. 3 Basic Questions We live in a world of relatively scare resources.
How will they be used?
What to produce?
How to produce?
For whom to produce?

8. Factors of Production
Reason people cannot satisfy all their wants and needs is the scarcity of productive resources.
Factors of production: Resources required to produce.
Land, capital, labor, and entrepreneurs.
All 4 are required if goods and services are to be produced.

9. Factors of Production Land-Natural resources.
Capital-Tools, equipment, machinery, and factories, as well as financial capital (money).
Can also be the result of production.
Example: Bulldozer used for construction was also built in a factory.
Labor-Efforts, abilities, and skills of people.
Entrepreneurs-Risk-taker in search of profits who does something with existing resources.

10. Scope of Economics
It is a social science because it deals with the behaviors of people as they deal with the basic issue.
Description
Analysis
Explanation
Prediction

11. Basic Economic Concepts
Economics is concerned with economic products.
Goods and services that are useful, relatively scarce, and transferable to others.
Because of this, economic products demand a price.

12. Goods Item that is economically useful or satisfies an economic want.
Consumer goods – Intended for final use by individuals.
Capital goods – Manufactured goods used to produce other goods and services.
Durable good – Any good that lasts 3 years or more.

13. Services Work that is performed for someone.
Haircuts, home repairs, doctors, teachers, etc.
Unlike goods, services are intangible, meaning they cannot be touched.

14. Value Worth that can be expressed in dollars and cents.
Paradox of value – The situation where some necessities have little monetary value, whereas some non-necessities have a higher value.
Example: Water vs diamonds

15. Utility
For something to have value, it must have utility, the capacity to be useful and provide satisfaction.
Is not fixable or measureable
Varies from person to person in level of satisfaction

16. Circular Flow of Economic Activity
Makes possible the wealth that an economy generates.
Key feature is the market, a location or other mechanism that allows buyers and sellers to exchange a certain economic product.

17. Circular Flow of Economy
Factor markets – Markets where productive resources are bought and sold.
Example: Acquiring land in return for rent.
Product markets – Markets where producers sell their goods and services to consumers.

18. Productivity and Economic Growth
Economic Growth – When a nation’s total output of goods and services increases over time.
Productivity – A measure of the amount of output produced by a given amount of inputs in a specific amount of time.

19. Division of Labor and Specialization
Division of labor – Work is arranged so that individual workers do less tasks.
Specialization – When factors of production perform tasks that they can do relatively more efficiently than others.
Both improve productivity.

20. Investing in Human Capital
The sum of the skills, abilities, health, and motivation of people.

21. Economic Interdependence
Relying on others, and others relying back, to provide the goods and services that we consume.

22. Economic Choices/Decision Making
Identifying the problem
Analyzing alternatives
Consider costs and benefits

23. Trade-Offs Alternative choices when making an economic decision.
Advantages and disadvantages of choices.

24. Opportunity Costs
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.
Economic decisions involve recognizing and evaluating the cost of the alternatives as well as making choices from among the alternatives.

25. Production Possibilities
Production possibilities frontier – Diagram representing various combinations of goods and/or services an economy can produce when all product resources are fully employed.

26. Cost-Benefit Analysis
Way of thinking about a problem that compares the costs of an action to the benefits received.

27. Free Enterprise Economy
One in which consumers and privately owned businesses, rather than the government, make the majority of the what, how, and for whom decisions.