2. ECONOMICS What is it?? Hmmmmm ??

3. ECONOMICS Book Definition: How people choose to use limited resources in an effort to satisfy unlimited wants

4. Economics Choices... What to buy, what not to buy.. Choices... What to buy, what not to buy.. Should I spend time reading this, or go on Youtube and watch a funny video... Should I spend time reading this, or go on Youtube and watch a funny video... Should I get a job this semester or concentrate on my classes... Should I get a job this semester or concentrate on my classes... This is an everyday definition of Economics. This is an everyday definition of Economics.

5. SCARCITY The problem of limited resources and unlimited wants. This is the essential economic problem everyone has, even Bill Gates.

6. A resource or good is scarce if: people want it people want it there is not enough of it to fulfill everyone’s wants there is not enough of it to fulfill everyone’s wants it has alternative uses it has alternative uses using it one way means giving up using it using it one way means giving up using it another way

7. Two Basic Questions Everyone has... What do I need and What do I want? What do I need and What do I want? You need to know... What is the difference between a need and a want?

8. A Need Textbook Definition: a basic requirement for survival- food, clothing, shelter. Textbook Definition: a basic requirement for survival- food, clothing, shelter.

9. A Want Textbook Definition- A way you express your needs Textbook Definition- A way you express your needs Huh? What does that mean? Huh? What does that mean?

10. Need vs. Want You need to eat You need to eat You want a Doughnut You want a Doughnut You don’t need a Doughnut.. Some broccoli would work just as well.. But you WANT a doughnut You don’t need a Doughnut.. Some broccoli would work just as well.. But you WANT a doughnut The doughnut is how you’ve expressed your need to eat. The doughnut is how you’ve expressed your need to eat.

11. In Economics some words have very specific meanings outside of how we normally use them. For example- the word Cost For example- the word Cost In the regular world- the word cost means, the price of something you buy. In the regular world- the word cost means, the price of something you buy. In Economics- the word Cost means Consequence. In Economics- the word Cost means Consequence. You need to know the meaning of the word Cost You need to know the meaning of the word Cost

12. TINSTAAFL “There is no Such thing as a free lunch.” “There is no Such thing as a free lunch.” When you make a choice, you usually give something up. When you make a choice, you usually give something up. For example, let’s say you have a dollar For example, let’s say you have a dollar

13. With your dollar you have two options A Candy Bar or A Soda A Candy Bar or A Soda You can only buy one of the two options with your dollar You can only buy one of the two options with your dollar

14. If you chose the Candy bar A Candy Bar No Soda for you A Candy Bar No Soda for you

15. If you choose the soda No Candy for you

16. You can’t have both By choosing one, you give up the other. By choosing one, you give up the other. Whatever you did not choose, that was the cost (consequence) of your choice. Whatever you did not choose, that was the cost (consequence) of your choice.

17. 3 BASIC ECONOMIC QUESTIONS WHAT GOODS & SERVICES SHALL BE PRODUCED? WHAT GOODS & SERVICES SHALL BE PRODUCED? HOW SHALL THEY BE PRODUCED? HOW SHALL THEY BE PRODUCED? FOR WHOM SHALL THEY BE PRODUCED? FOR WHOM SHALL THEY BE PRODUCED? Everyone has to answer these three questions for everything that they do. Everyone has to answer these three questions for everything that they do.

18. Three Question Example You want to make a peanut butter sandwich for a snack You want to make a peanut butter sandwich for a snack You’ve just answered the first basic Economic question- WHAT GOODS & SERVICES SHALL BE PRODUCED?- Answer- A peanut butter sandwich You’ve just answered the first basic Economic question- WHAT GOODS & SERVICES SHALL BE PRODUCED?- Answer- A peanut butter sandwich

19. So what do you do.. Get out the bread, spread peanut butter on one piece, jelly on the other and put them together. Get out the bread, spread peanut butter on one piece, jelly on the other and put them together. You’ve just answered the second basic economic question- HOW SHALL THEY BE PRODUCED? You’ve just answered the second basic economic question- HOW SHALL THEY BE PRODUCED?

20. Then you eat it... You’ve just answered the third basic economic question- FOR WHOM SHALL THEY BE PRODUCED? For yourself ! You’ve just answered the third basic economic question- FOR WHOM SHALL THEY BE PRODUCED? For yourself !

21. WHAT GOODS & SERVICES SHALL BE PRODUCED? WHAT GOODS & SERVICES SHALL BE PRODUCED? HOW SHALL THEY BE PRODUCED? HOW SHALL THEY BE PRODUCED? FOR WHOM SHALL THEY BE PRODUCED? FOR WHOM SHALL THEY BE PRODUCED? Every person Every person Every business Every business Every country Every country All must be able to answer these questions, if they can’t -people die, businesses go broke, countries collapse. All must be able to answer these questions, if they can’t -people die, businesses go broke, countries collapse.

22. LIMITED RESOURCES (We can’t always get what we want) Think of three things that you want but cannot afford. Think of three things that you want but cannot afford. Think of three things you wish were in Woodland Think of three things you wish were in Woodland Think of three things that America needs but must obtain from another country Think of three things that America needs but must obtain from another country

23. Possible Answers For yourself- A car, clothes, more food, I- pod, computer For yourself- A car, clothes, more food, I- pod, computer For Woodland- A better Mall, a Zoo, a theme park, cheaper housing For Woodland- A better Mall, a Zoo, a theme park, cheaper housing For America- Oil, Electronics, Cars, For America- Oil, Electronics, Cars, We can’t have everything due to scarcity, we must specialize based on what we have to work with. We can’t have everything due to scarcity, we must specialize based on what we have to work with.

24. There are four basic elements that go into any type decision making, business or country. FACTORS OF PRODUCTION NATURAL RESOURCES NATURAL RESOURCES CAPITAL GOODS CAPITAL GOODS LABOR LABOR ENTREPRENEURSHIP ENTREPRENEURSHIP

25. NATURAL RESOURCES THINGS PROVIDED BY NATURE THINGS PROVIDED BY NATURE For example- the peanut butter for your sandwich. For example- the peanut butter for your sandwich. LAND, AIR, WATER, FORESTS, COAL, IRON ORE, OIL, ETC. LAND, AIR, WATER, FORESTS, COAL, IRON ORE, OIL, ETC. AN ECONOMY CANNOT CREATE GOODS IF IT LACKS NATURAL RESOURCES. AN ECONOMY CANNOT CREATE GOODS IF IT LACKS NATURAL RESOURCES.

26. CAPITAL GOODS HUMAN MADE RESOURCES THAT ARE USED FOR PRODUCTION. HUMAN MADE RESOURCES THAT ARE USED FOR PRODUCTION. For example- the knife used to spread the peanut butter, you can’t eat it, but you need it for the sandwich process to work. For example- the knife used to spread the peanut butter, you can’t eat it, but you need it for the sandwich process to work. FACTORIES, MACHINES, TRUCKS, BUSINESS BUILDINGS. FACTORIES, MACHINES, TRUCKS, BUSINESS BUILDINGS. THINGS THAT A BUSINESS USES TO MAKE ITEMS THAT WILL BE SOLD TO A CONSUMER. THINGS THAT A BUSINESS USES TO MAKE ITEMS THAT WILL BE SOLD TO A CONSUMER.

27. LABOR HUMAN RESOURCES HUMAN RESOURCES THE HUMAN EFFORT USED IN PRODUCTION. THE HUMAN EFFORT USED IN PRODUCTION. For example- you making the sandwich For example- you making the sandwich

28. ENTREPRENEURSHIP INDIVIDUALS WHO USE CREATIVITY AND KNOW HOW TO CREATE A BUSINESS. INDIVIDUALS WHO USE CREATIVITY AND KNOW HOW TO CREATE A BUSINESS. THEY ASSUME THE RISK OF FAILURE. THEY ASSUME THE RISK OF FAILURE. For example- you deciding to make a sandwich. If you decide to sell your sandwich, you might make money, you might not. That’s the risk. For example- you deciding to make a sandwich. If you decide to sell your sandwich, you might make money, you might not. That’s the risk.

29. Some Misconceptions Corrected Not resources Not resources – Time – Money Economics and Finance are not the same Economics and Finance are not the same – Economics is about resources – Finance is about money – Finance is an application of economic reasoning

30. More Terms to know A Good - an item that is economically useful or that satisfies an economic want. A Good - an item that is economically useful or that satisfies an economic want. An example- A car, I-pod, soda, pants An example- A car, I-pod, soda, pants Note- A Capital good is an item used to produce another good- knife for peanut butter. Note- A Capital good is an item used to produce another good- knife for peanut butter.

31. A Service – work performed for someone A Service – work performed for someone Example- haircut, oil change, teeth cleaning, brain surgery. Example- haircut, oil change, teeth cleaning, brain surgery. You can’t hold a haircut, but you can get one. You can’t hold a haircut, but you can get one.

32. Consumer- Me, you, everyone. Consumer- Me, you, everyone. People who use goods and services to satisfy wants and needs. People who use goods and services to satisfy wants and needs.

33. Question Time... What makes something valuable? What makes something valuable? Value means- Worth that can be expressed in dollars and cents. Value means- Worth that can be expressed in dollars and cents.

34. Are you valuable to your parents?? Are you valuable to your parents?? How much are you worth to them? How much are you worth to them? Can they express what you are worth in money ?? Can they express what you are worth in money ?? Odd questions... Odd questions...

35. Value in Economics doesn’t have anything to do with emotions, strictly dollars. Value in Economics doesn’t have anything to do with emotions, strictly dollars. Currently you cost your parents just over an estimated 7500 dollars a year in food, housing, and medical expenses. Currently you cost your parents just over an estimated 7500 dollars a year in food, housing, and medical expenses. Next year, the number goes up when you include college tuition. Next year, the number goes up when you include college tuition.

36. Paradox of Value Which is more valuable- Which is more valuable- A Diamond Ring or a Flat Screen TV A Diamond Ring or a Flat Screen TV

37. Paradox of Value Let’s be honest- Many guys would say the TV, and many girls would choose the ring. Let’s be honest- Many guys would say the TV, and many girls would choose the ring. Who is right? Who is right?

38. Another Term Utility – the capacity to be useful. Utility – the capacity to be useful. For example in a utlity closet you find all sorts of useful things- brooms, mops, sponges etc.. For example in a utlity closet you find all sorts of useful things- brooms, mops, sponges etc..

39. Paradox of Value Now.. Which one has more utility ? Now.. Which one has more utility ? How is a Diamond Ring useful? How is a Diamond Ring useful? How is a TV useful? How is a TV useful?

40. Paradox of Value TVs do have more utlity than a Diamond ring, unless you’re trapped in a glass box and have to cut your way out. TVs do have more utlity than a Diamond ring, unless you’re trapped in a glass box and have to cut your way out. Generally, we assign more value to a Diamond. Generally, we assign more value to a Diamond. This is known as the Paradox of Value- Assigning value to items with little utility, but high scarcity. This is known as the Paradox of Value- Assigning value to items with little utility, but high scarcity.

41. Making Economic Decisions For every decision you have choices, some big, some small, sometimes you have many, other times you have only a few. For every decision you have choices, some big, some small, sometimes you have many, other times you have only a few. Term: Trade-off – any alternative choice. Term: Trade-off – any alternative choice.

42. OPPORTUNITY COST The next best alternative use of a resource that is given up when a decision is made to use resources in a particular way.

43. Back to the Candy Purchase Snickers or Skittles Snickers or Skittles Let’s presume, that if Bel-Air was out of Snickers, your next choice for candy would be Skittles. Let’s presume, that if Bel-Air was out of Snickers, your next choice for candy would be Skittles.

44. If you had to choose between the two: Snickers or Skittles Snickers or Skittles If Bel-Air had both in stock, and you chose Snickers, your Opportunity Cost would be the Skittles, since you can’t buy both. If Bel-Air had both in stock, and you chose Snickers, your Opportunity Cost would be the Skittles, since you can’t buy both.

45. Illustrating Opportunity Cost. You can’t buy everything you want You can’t buy everything you want Countries can’t produce everything they need. Countries can’t produce everything they need. In Economics, we use graphs to explain the range of choices in any decision. In Economics, we use graphs to explain the range of choices in any decision.

46. Ok.. An Odd example... (I really didn’t make this one up) Suppose there is an imaginary country... Suppose there is an imaginary country... In this country, they are very productive, but not very creative. They can only make two things: Guns and Butter In this country, they are very productive, but not very creative. They can only make two things: Guns and Butter

47. As President, you can order your people to make Guns, Butter or both at the same time. As President, you can order your people to make Guns, Butter or both at the same time.

48. If you order everyone to make Guns, they can produce a maximum of 50 Guns If you order everyone to make Guns, they can produce a maximum of 50 Guns If you order everyone to make Butter, they can make a maximum of 50 Butter. If you order everyone to make Butter, they can make a maximum of 50 Butter.

49. If you had to graph your options it would look like this 50 50 Guns Butter50 0 Point A Point B Point A represents Everyone producing Guns Point B represents Everyone producing Butter

50. If you had to graph your options it would look like this 50 50 Guns Butter50 0 Point A Point B Point A represents Everyone producing Guns Point B represents Everyone producing Butter Point C represents ½ of your population producing Guns, and the other ½ producing Butter Point C

51. The Curve is called a Production Possibilities Curve or Production Possibilities Frontier 50 50 Guns Butter50 0 Point A Point B The Curve represents all possible options that you have. In this case, how much guns or butter you can produce. Point C

52. Opportunity Cost 50 50 Guns Butter50 0 Point A Point B Point C If your country is currently at point A, and you decide to produce a few pounds of Butter, the opportunity cost are the guns you have to stop producing.

53. Economic Growth 50 50 Guns Butter50 0 Point A Point B Suppose you invade a neighboring country and obtain more resources, your PPF line would shift. Point C

54. Economic Growth cont. 50 50 Guns Butter50 0 Point A Point B Point C Based on your new curve, you could produce more guns and butter, because your resources Increased.

55. Guns and Butter- Translation Guns – It represents Government Spending- Roads, the FBI, the Army, the Post Office etc.. Guns – It represents Government Spending- Roads, the FBI, the Army, the Post Office etc.. Butter- Private Spending- Buying a house, a cheeseburger, a cell phone etc... Butter- Private Spending- Buying a house, a cheeseburger, a cell phone etc... During the Cold War, we beat the USSR, because we could produce more Guns and Butter at the same time, they spent all of their resources on Guns. During the Cold War, we beat the USSR, because we could produce more Guns and Butter at the same time, they spent all of their resources on Guns.

56. Which of the following is an opportunity cost? a. A bad grade on a quiz because you didn’t study a. A bad grade on a quiz because you didn’t study b. Your mother’s hurt because you forgot her birthday b. Your mother’s hurt because you forgot her birthday c. Not going out with your friends because you are called in to work. c. Not going out with your friends because you are called in to work. d. All of the above are opportunity costs. d. All of the above are opportunity costs.

57. Thinking in Economics Economists use: Economists use: Models Models No, not that kind... Graphs... No, not that kind... Graphs... Cost- Benefit Analysis –weighing the consequence of a decision against its benefits. Cost- Benefit Analysis –weighing the consequence of a decision against its benefits. Taking Small Steps. Taking Small Steps.