3.  Wants –  Needs –  People always want more, no matter what they have  wants are unlimited, but resources to fill are limited  Scarcity –  not a temporary shortage, it is a problem facing individuals, businesses, govt., society  Science to study it is called economics

4.  Econ involves:  Examining –  Organizing, analyzing, and interpreting data about those economic behaviors  Developing theories and economic laws that explain how the economy works and to predict what might happen in the future.

5.  Principle 1:  Choice is central to the use of scarce resources.  Choices about needs – what kind of food  Choices about wants – these are unlimited & ever changing  Principle 2:  Scarcity affects which goods are made and services are provided  Goods – physical objects that can be purchased  Services – work that one person performs for another for payment  Consumer –  Producer –

7.  Society must decide the mix of goods and services it will produce  what is produced depends on the natural resources possessed  but resources do not completely control what a country produces  some countries decide by allowing consumers and producers to decide  in other countries, the govt. decides what goods and services will be produced  This question also involves how much to produce  the country must review its wants at any time to decide this

8.  This involves using scarce resources in the most efficient ways to satisfy wants  this is also influenced by the natural resources that a society possesses  ex. - growing crops – different approaches  large unskilled labor force – labor intensive methods – few machines  highly skilled labor force – capital intensive – lots of machines

9.  This involves how goods will be distributed among people in society  Questions –Need to determine how much people should get how much they pay or equal share  Distribution networks –

10. -the economic resources needed to produce goods and services

11.  Includes all natural resources found on or under the ground that are used to produce goods and services

12.  is all the human time, effort, and talent that goes in to the making of products

13.  is all the resources made and used by people to produce and distribute goods and services  ex. –  human capital –  ex. – college, job training

14.  Is the combination of vision, skills, ingenuity, and willingness to take risks that is needed to create and run new businesses  most entrepreneurs are innovators  try to anticipate and meet needs of consumers in new ways  new product, method of production, way of marketing or distributing  Are also risk takers – risk time, energy, creativity, money in hope for profit

16. -What shapes the economic choices? -incentive – -utility – -“economize” – consider both incentive and utility – -make decisions according to what you believe is the best combination of costs and benefits

17. FACTOR 1:  Choices are shaped by incentive, expected utility, and the desire to economize  Costs vs. benefits – looking for best mix of costs and benefits  Making decisions – guided by self-interest – looking for ways to maximize utility FACTOR 2:  Every choice involves costs  Money, time, or something else of value

18. Trade-offs –

19. EXAMPLE 1:  *choice – semester long course at university vs. 6 week course at high school  selects 6 week course, less credits, but gets summer vacation EXAMPLE 2:  Opportunity cost –  Alternative over another  *choice – work for year vs. work for 6 months and travel for months  Selects work for 6 months and travel for 6 months – less income, but visits friends

20. -cost-benefits analysis – -useful tool for individuals, businesses and govt. when to evaluate relative worth of economic choices

21.  application of cost-benefit analysis is decision-making grid  shows what you get and what you give up when you make choices  costs and benefits change over time, as do goals and circumstances  changes influence decisions people make

22.  marginal costs –  marginal benefit –  analysis is central to study of economics  helps explain the decisions consumers, producers, and govt. make as they try to meet their unlimited wants with limited resources

24.  Economic models –  Production Possibilities Curve(PPC) – a graph used to illustrate the impact of scarcity on an economy by showing the maximum number of goods or services that can be produced using limited resources

25.  Resources are fixed – no way to increase the availability of land, labor, capital and entrepreneurship  All resources are fully employed – there is no waste of any of the factors of production  Only two things can be produced – assumption simplifies the situation and suits the graphic format – one variable on each axis  Technology is fixed – no technological breakthroughs to improve methods of production  -Curve represents border or frontier between what is and what is not possible to produce also called a Production Possibilities Frontier useful for bus. & govt., but can be used by individual

26.  Figure 1.3 – 5 production possibilities for loaves of bread and bran muffins  Figure 1.4 – graph plotted from data in table – line is the PPC  points represent maximum of one product relative to the other  also shows opportunity cost of one product compared to the other

27.  No economy operates according to simplified assumptions of PPC  but it spotlights concepts that work in the real world of scarce resources  Efficiency –  Underutilization –

28.  Figure 1.5 – guns vs. butter – military vs. consumer production  each point the on curve shows different combination of each, and each represents efficiency  each point inside the curve is underutilization, and points outside the curve are impossible because resources are fixed

30.  Figure 1.5 – switching from guns to butter or butter to guns  each additional unit costs more to make than the last, explains bow shape of curve  reason – making one is different from making the other – new machines, factories, and retrain Workers

31.  The PPC represents present PP if resources are fixed, but that usually changes over time  additional resources means new PP and the PPC moves outward  Example: A Shift in the PPC in the 1700s the US occupied only a small area along the Atlantic  100 yrs. Later, it expanded to the Pacific – meaning the addition of resources, in addition to the added immigrants means additional labor  this is shown on the PPC as a shift of the curve outward – this is called economic growth

33.  Economics is something that everyone knows and works with everyday  Economists study this to figure out why some nations are rich or poor and why consumers want one product while others want another product  Statistics –

34.  Models are based on assumptions and are simplified because they are based on a limited number of variables  models expressed in words, graphs or equations  explain why things are as they are, help predict future economic activity

35.  Look for trends, connections and other interesting relationships  Showing numbers in relation to other numbers can reveal patterns in the data

36.  Graphs are used to ID trends in statistics  Line graph – useful for showing changes over time  Line graphs use 2 sets of numbers or variables – one on horizontal and one on vertical axis  The numbers of what is being used are plotted on the graph and connected to form a line  upward slope – upward trend  downward slope – downward trend  straight line – same slope  curved line – varied slope

37.  Bar Graph – useful for comparisons  vividly shows changes in data  Pie Graph –  slices drawn in proportion to the number they represent

38. -Microeconomics – -Macroeconomics – is the study of the behavior of the economy as a whole and involves topics such as inflation, unemployment, aggregate demand, and aggregate supply

39.  Micro –  examines specific, individuals elements in the economy  prices, costs, profits, competition, behavior of consumers and producers  areas of specialized concentration  business organization, labor markets, agricultural economics, econ of environmental issues

40.  Macro –  examines the big picture – economy as a whole  the effect of widespread unemployment on the whole nation  a general rise on prices  studies the consumer sector (household sector), business sector, and public or govt. sector  Sector –  bring a national or global perspective to work  study monetary system, up and down of business cycles, impact of national tax policies on economy, international trade and effect on rich and poor nations

41. -Positive economics – way of describing and explaining economics as it is and not how it should be, involves verifiable facts - Normative economics –

42. POSITIVE ECONOMICS  Uses scientific method –  Statements can be tested against real world data and either proved or disproved NORMATIVE ECONOMICS  Based on value judgments  goes beyond facts to ask if actions are good, values differ, so then recommendations will

43.  Born in Kirkcaldy, Scotland in 1723  Studied and taught literature, logic, and moral philosophy  1764 – traveled to France – the Enlightenment – result – looked at world in new way

44.  -1776 –  challenged idea of mercantilism – govt. controlled trade with its colonies  said free trade would be better  said people behave in ways that satisfy their economic self-interests  an invisible hand guides the marketplace  buyers and sellers benefit from each transition  becomes foundation of modern economics