2. Economics All people and societies have unlimited wants. They desire goods and services: Goods: tangible items (food, clothing, electronics) Services: not physical, not tangible (movies, concerts, cleaning services) Productive Resources: Factors of production, used to produce goods and services, limited Three types: 1. Human Resources: Labor and Entrepreneurs 2. Natural Resources: gifts of nature - renewable resources: can be drawn on indefinitely (timber, air) - exhaustible: does not renew itself, limited amount (oil, minerals) 3. Capital Resources: human creations used to produce goods and services (factories, trucks, machines)

3. Economics Scarcity: The condition facing all societies because there are not enough productive resources to satisfy peoples unlimited wants Economics: The study of how people use their scarce resources to fulfill their unlimited wants (no such thing as a free lunch) Economic Theory: - models or theories used to explain economic behavior and thus make predictions about the real world - Economies are cyclical, either moving up or down - Economists apply theories to attempt to lessen the effect of these cycles Microeconomics: Focuses on individual economic behavior Macroeconomics: Focuses on the economy as a whole (either national or international)

4. In celebration of your upcoming High School Graduation, your family has agreed to throw you a graduation party. You have been granted access to unlimited resources for this party. For homework tonight, you are going to begin planning for this party. Bring to class tomorrow your idea for your dream graduation party. You should include a theme and a brief description of what the party will include. Be as creative as you like… remember, you have unlimited resources!!!

5. Explain the theme and briefly describe each of the parties including the number of guests and the total cost. 1.What are some of the key differences between the three parties? 2.Were you able to keep your theme consistent? 3.What did you sacrifice (change) as the resources for the party decreased? 4. How did you decide what to sacrifice?

6. Economic Systems Three Economic Questions: 1. What goods and services will be produced? 2. How will they be produced? 3. For whom will they be produced? The answers to these questions and who gets to answer the questions vary depending on the type of economic system a country has. Economic Systems: 1. Pure Market Economy 2. Pure Centrally Planned Economy (Command) 3. Traditional Economy 4. Mixed Market Economy

7. Pure Market Economy - Private Ownership of all resources, goods, and services - Free, Competitive Markets - No Government regulation and taxation - Revenues go exclusively to the resource owners - The markets answer all three questions - Adam Smiths Invisible Hand – each individual pursues his or her self-interest but the invisible hand of market competition promotes the general welfare Problems with a Pure Market Economy: - Difficulty enforcing property rights - No protection for those in poverty - Nothing to prevent monopolies from forming - No public goods or protections- Military, Police, Environment

8. Pure Centrally Planned Economy - Public ownerships of all resources (including labor), goods, and services - Central Planners allocate resources and direct the production and distribution of goods and services - No Competition in the economy - Government answers all three questions - Karl Marx Problems with a Pure Centrally Planned Economy: - Consumers get low priority – consumer goods are scarce - little freedom of choice for individuals, government decides what is important - no incentive for individuals to succeed (no entrepreneurs)

9. Other Economic Systems Traditional Economy: - Economy shaped by custom or religion (caste system) - All three questions answered by the church or ruling party - Family is the most important economic unit Problems with a traditional economy: - No choices for consumers - no opportunity for advancement for labor, no incentive to succeed - does not use technological advancements - barter Transitional/Developing Economy: -Any economy that is shifting from one system to another -Command to Market – i.e. China -Traditional to Command or Market – Developing World

10. Mixed Market Economy - Draws from all three economic systems – most common type of economic system -Government control, not command – regulates the market to ensure the welfare of all - How much role the government has depends on the country - Monopolies are regulated and illegal actions are punished - Freedom of choice for consumers - Incentive for labor to advance and work hard - Invisible hand of the market continues to promote the common good - Market answers three questions - The most common economic system in the world, the United States has a mixed market economy

11. The United States Mixed Market System Market: The means by which people buy and sell something, an arrangement that allows buyers and sellers to exchange things Product Markets: Where goods and services are exchanged Resource (Factor) Markets: Where productive resources are exchanged Means of Exchange: Barter and Money

12. US Market Participants: Households, Firms, Governments, the Rest of the World - All participants act as both consumers and producers Circular Flow of Money: The flow of resources, products, revenues, and incomes among market participants

13. Consumers in the United States Market System - All participants act as consumers, demand goods and services - Consumers focus on Maximizing their Utility (their level of satisfaction or sense of well-being) - Unlimited Wants v. Reality – Choices - Rational Self-Interest: each individual tries to make the best choices for themselves, either try to maximize the expected benefit with a given cost or minimize the expected cost of achieving a certain benefit (Costs = money, time, level of satisfaction) - Marginal Analysis: adding one more product or item, Marginal Cost v. Marginal Benefit - Opportunity Costs: Value of the best alternative you must give up, the cost of what you dont buy or use (opportunity lost) -Trade-Offs – What you actually buy, the purchase of a good or service, with every trade-off there is an opportunity cost

15. Producers in the United States Market System - All participants act as producers, supply productive resources, supply goods and services - Producers try to maximize profits Absolute Advantage: Being able to produce something using fewer resources than other producers require Law of Comparative Advantage: the worker with the lower opportunity cost of producing a particular output should specialize in that output Specialization: individual workers focus on single tasks (division of labor)

16. The remainder of the course will take a more in depth look at the United States Market System. We will study both: 1. Microeconomics: The study of how each of the participants in the United States Market system behave. Specifically: 1. Market Forces – Supply and Demand 2. Market Participants – Businesses, Banks, and Securities 2. Macroeconomics: The study of the entire national economy and the governments attempts to control/regulate the economy. Specifically: 1. National Economic Indicators 2. Fiscal Policy 3. Monetary Policy 4. International Trade and Aid