1. Economics Review

2. Economics The Science of Scarcity Or the Science of Choice
The study of people producing and exchanging to get the things they want.
The study of how individuals and societies make choices about ways to use scarce resources to fulfill their wants.

3. Scarcity
We have scarcity, because we have unlimited needs and wants, but limited resources.

4. Choice Because we have scarcity, we are forced to make choices.
Everything that exists is limited.

5. Opportunity Cost
When we choose between alternatives that offer different benefits we must realize that there will be “Trade Offs.”
Choosing is refusing the next best alternative.

6. 6 Step Decision Process Identify/Define the Problem/Opportunity
Study the Environment
List all Possible Alternatives
Collaborate & Choose the Best Alternative
Launch Your Plan
Evaluate Your Progress, and Continue or Start over.

7. Voluntary Exchange
Two or more people exchanging things of value voluntarily.
Marginal Benefit > Marginal Cost
MB>MC

8. Factors of Production
Land
Labor
Capital
Entrepreneurship

9. Production Possibilities Curve

10. 3 Economic Questions What to produce? Who will produce it?
For whom will it be produced?

11. Four Types of Economic Systems
Traditional – Customs, Traditions (Pioneers, Pilgrims)
Market – Free Enterprise, Capitalism (U.S.A.)
Command – Communism / Dictatorship (Cuba)
Mixed – Socialism / High degree of Government intervention + Market (Sweden, France, Italy)

12. The Law of Demand
As the price of a good or service decreases consumers will want to by more of it, and visa versa:

13. The Law of Supply
As the price of a good or service increases suppliers will want to make more of it, and visa versa:

14. Equilibrium or Market Clearing Price

15. Gross Domestic Product (GDP)
The total value of goods produced and services provided in a country for a specific time period (Quarter or Year).
Two successive quarters (3 months each) of a decline in GDP is classified as a recession.

16. Four Types of Unemployment
Frictional – Temporary Transition
Structural – Lack of Skills
Cyclical – Economic Contraction
Seasonal – Temporary Work due to the season of the year

17. Wealth of Nations Written by Adam Smith in 1776
Provided the basis for our economic system of free trade and capitalism
Along with Thomas Payne’s “Common Sense” gave the literary motivation that helped fuel the Revolutionary War with Great Brittan
The invisible hand of self-interest results in the greatest good for society

18. 3 Economic Theories
Adam Smith – “The Wealth of Nations” – The Invisible Hand – Self Interest (Free Market)
John Maynard Keynes – Keynesian Economics – Economic Stabilization through Government Intervention (Socialism)
Karl Marx & Frederick Engels – “The Communist Manifesto” & “Das Kapital” – The end justifies the means.

19. Federal Reserve System
The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and 12 regional Federal Reserve Banks in major cities throughout the United States.

20. Monetary & Fiscal Policy
Monetary Policy – The Federal Reserve Bank
Discount Rate / Interest Rates / Increase or Decrease
Reserve Requirement / Credit / Loose or Tight
Fiscal Policy – The Executive Branch
The Federal Budget / Surplus or Deficit / Inflation

21. 3 Purposes of Money
Medium of Exchange
Store of Value
Measure of Price

22. Multiplier Effect
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

23. Monopoly
Monopoly - A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition, which often results in high prices and inferior products.
Oligopoly – Similar to a monopoly, except a few companies working together to limit or eliminate competition.

24. Perfect Competition
In economic theory, perfect competition (sometimes called pure competition) describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets.
Example – The global auto industry

25. Economics The Science of Scarcity
Scarcity is the fundamental economic problem that forces consumers
and producers to use resources wisely.
Unlimited
Wants
Limited
Resources
Scarcity
Choices
WHAT
to produce
HOW
to produce
FOR WHOM
to produce

26. The Circular Flow of Economic Activity
Business
Income
Consumer
Spending $ $
Product Markets
Goods & Services
Goods & Services
Business
Individuals
Land
Capital
Labor
Entrepreneurs
Buy Productive
Resources
Factor Markets $ $
Payments
for Resources
Income
from Resources

27. Marginal Analysis

28. Global Economy 3 methods a nation can use to curtail imports:
Tariffs (Import Tax)
Quotas (Limits on Volume)
Embargos (Blockade)
Exchange Rates (Dollars / Euros, or Yen)
Balance of Trade (Imports = Exports)