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Chapter 1 Basic Economic Concepts
I WON THE LOTTERY! I’ll give you anything you want other than money. What do you want? Would your list ever end? Why not? Scarcity!!!
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Economics is the study of _________.
What is Economics? Economics is the science of scarcity. Scarcity means that we have unlimited wants but limited resources. * Fundamental ? * Since we are unable to have everything we desire, we must make choices on how we will use our resources. Economics is the study of _________. choices In economics we will study the choices of individuals, firms, and governments.
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(Study of how individuals and societies deal with ________)
Examples: You must choose between buying jeans or buying shoes. Businesses must choose how many people to hire Governments must choose how much to spend on welfare. Textbook Definition Economics- Social science concerned with the efficient use of scarce resources to achieve maximum satisfaction of economic wants. (Study of how individuals and societies deal with ________) scarcity
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Is There Such a Thing as a Free Lunch
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3 Basic ?’s What to Produce? How to Produce? For Whom?
3 Basic questions to decide how to utilize our limited resources For Whom?
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The 4 Factors of Production
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The Four Factors of Production
Producing goods and services requires the use of resources - ALL resources can be classified as one of the following four factors of production: Land Labor Capital Entrepreneurship
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The Four Factors of Production
Land = Natural Resources used to produce goods and services. (Water, Sun, Plants, Oil, Trees, Stone, Animals, etc.) Labor = Any effort a person devotes to a task for which that person is paid. (manual laborers, lawyers, doctors, teachers, waiters, etc.)
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The Four Factors of Production
Capital: 1. Physical Capital- Human-Made resource used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) 2. Human Capital- Skills or Knowledge gained by a worker through education and experience (college degrees, vocational training, etc.)
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The Four Factors of Production
Entrepreneurship= Innovator who combine existing factors of production to create new goods or services. Examples - Henry Ford, Steve Jobs, Mark Zuckerberg, Inventors, Store Owners, etc. Entrepreneurs: Take The Initiative Innovate Act as the Risk Bearers So they can obtain _________. PROFIT Profit= Revenue - Costs
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The Four Factors of Production
Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.
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The Four Factors of Production
Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.
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Trade-offs and Opportunity Cost
ALL decisions involve trade-offs. Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. (Examples: going to the movies) The most desirable alternative given up as a result of a decision is known as opportunity cost. What are trade-offs of deciding to go to college? What is the opportunity cost of going to college? GEICO assumes you understand opportunity cost. Why?
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Economic Terminology Utility = Satisfaction! Marginal = Additional!
Allocate = Distribute!
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Goods vs. Services Give examples…
Goods= physical objects that satisfy needs and wants Consumer Goods- created for direct consumption (example: pizza) Capital Goods- created for indirect consumption (oven, blenders, knives, etc.) Goods used to make consumer goods Services= actions or activities that one person performs for another (teaching, cleaning, cooking)
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The Circular Flow Model
The Product Market- The “place” where goods and services produced by businesses are sold to households. The Resource (Factor) Market- The “place” where resources (land, labor, capital, and ent.) are sold to businesses.
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DEMAND SUPPLY Individuals Businesses SUPPLY DEMAND Resource Market
$$$ Costs $$$ $$$ Income $$$ Resources Resources (Factors of Production) Individuals Businesses Goods and Services Goods and Services $$$ Spending $$$ $$$ Revenue $$$ SUPPLY DEMAND Product Market 17
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