1. Economics
The study of how scarce, or limited resources are used to satisfy unlimited material wants and needs; the study of decision making in a world of scarcity.

2. Limited resources to satisfy wants
Unlimited wants
Limited resources to satisfy wants
Choose between alternatives

3. Scarcity and Choice Scarce Goods Limited Resources
Food (bread, milk, meat, eggs, vegetables, coffee, etc.)
Clothing (shirts, pants, blouses, shoes, socks, coats, sweaters, etc.)
Household (tables, chairs, rugs, beds, goods dressers, television sets, etc.)
Space exploration
Education
National defense
Recreation
Leisure time
Entertainment
Clean air
Pleasant (trees, lakes, rivers,
environment open spaces, etc.)
Pleasant working conditions
Land (various degrees of fertility)
Natural (rivers, trees, minerals, Resources oceans, etc.)
Machines and other human-made physical resources
Non-human animal resources
Technology (physical and scientific “recipes” of history)
Human (the knowledge, skill, resources and talent of individuals)

4. Division of Labor Specialization Production
In more advanced economies…
Division of Labor
allows
Specialization
which increases
Production

5. 1. Focus on a particular production process.
Specialization allows for:
1. Focus on a particular production process.
2. Faster and higher quality production.
3. Economies of scale.

6. Division of Labor
Workers on an assembly line are an example of the divisions of labor.
Specialization is often paired with trading your specialty for theirs.

7. Benefits of Trade

8. Economic Analysis Macroeconomics (ECO201) Microeconomics (ECO202)
Monetary policy
Fiscal policy
Microeconomics (ECO202)
Households and firms
Marginal analysis

9. modeling 1. Make Assumptions a. Principle - relationship
b. Theory – string of principles
c. Law –theory proven to hold true most times

10. The Circular Flow of Goods and Services
Factor (Labor) Markets
4 Participants
2. Illustration of a model
Businesses
Households
Goods and Services Markets

11. Another
Circular
Flow

12. The Circular Flow Diagram
Four key markets coordinate the circular flow of income.
1. the resource market coordinates demand for factors of production between businesses and households.
2. The goods & services market coordinates the demand for output between businesses and households.
3. The loanable funds market directs household and foreign investments to business and government borrowers .
4. The foreign exchange market coordinates demand for currencies for export/import transactions

13. Circular Flow Markets
1. Resource (Labor) Market: a. Business firms demand resources
b. Households supply labor and other resources
c. in exchange for income.
Goods and Services Market: a. Businesses supply goods & services
b. Receive sales revenue.
c. Households, investors, governments, and foreigners (net exports) demand goods.

14. Which one? a. A real flow through a product market?
b. A money flow through a product market?
c. A real flow through a resource market?
d. A money flow through a resource market?
1. Receiving a paycheck at the end of each month?
2. Delivering a specially ordered car to a buyer?
3. Receiving patient care in a hospital?
4. Using a credit card to buy a meal in a restaurant?
5. Earning profit at your summer ice cream stand?
6. Obtaining college credits?
7. Working overtime? a d b c

15. How Decisions are Made 4 Types Using an Economic System
Method of organizing the relationship between businesses, households and the government to make the production decisions
4 Types

16. 4 Types 2. Using an Economic System
Method of organizing the relationship between businesses, households and the government to make the production decisions
4 Types

17. 1. Agrarian or Traditional A. What?
What the family business has been producing (for generations)
B. How?
Using the same method that have been used (for generations)
No incentive for change
C. For Whom?
Determined by place in society.

18. 3. Command Economy A. What? B. How? C. For Whom?
Goods needed to meet economic planning targets
B. How?
Aimed at achieving targets
Switch resources around to meet targets
C. For Whom?
Government decides who gets goods
Bonuses for important workers

19. 2. Market Economies A. What? B. How? C. For Whom?
- Goods and services that are profitable
- Goods and services consumers want.
B. How?
Efficiently- least cost combination of resources
C. For Whom?
Those who can pay.

20. 4. Mixed Economies Combine aspects of market and planned economies
Includes almost all economies

21. 4. Mixed Economies Coordinating Mechanism Nazi Germany US
Market System Planning
Nazi Germany
Private
Public US
Resource Ownership
China
Cuba

22. Most Economic Freedom
Least Economic Freedom
1. Hong Kong
168. Iran
2. Singapore
169. Turkmenistan
3. Australia
170. Equatorial Guinea
4. New Zealand
171. Democratic Republic of the Congo
5. Switzerland
172. Burma
6. Canada
173. Eritrea
7. Chile
174. Venezuela
8. Mauritius
175. Zimbabwe
9. Denmark
176. Cuba
10. United States
177. North Korea
Economic Freedoms, 2013 (Source: The Heritage Foundation, 2013 Index of Economic Freedom, Country Rankings,

23. Market Market Which Market Type?? Mixed? Market
1. Businesses are free to produce what ever they want and are always looking for cost-cutting techniques of production.
Mixed?
Traditional?
Market?
Planned?
Market
Market
Market

24. Mixed Mixed Which Market Type?? Mixed Mixed?
2. A catering business goes bankrupt, but its employees receive unemployment compensation while they look for other jobs.
Mixed
Mixed
Market?
Mixed
Traditional?
Planned?
Mixed?

25. Mixed Mixed Which Market Type?? Mixed? Mixed
3. Union and management representatives submit a deadlocked labor contract negotiation to the government for mediation.
Mixed
Mixed
Mixed?
Traditional?
Mixed
Market?
Planned?

26. Market Market Which Market Type?? Mixed? Market
4. Workers who have lost their jobs and incomes cut back their spending because there is no alternative source of emergency financial support once their savings runs out.
Market
Traditional?
Planned?
Market?
Mixed?
Market
Market

27. Planned Planned Planned Which Market Type?? Mixed?
5. Consumers are unable to obtain fuel injectors and windshield wiper motors for their cars because they are not being produced, yet accordions, which are plentiful and not in demand, continue to be produced.
Planned
Planned
Planned
Traditional?
Planned?
Market?
Mixed?

28. Underground Economy Seen in heavily regulated economies
Buyers and sellers make transactions without government approval

29. The trading of goods, services, and assets across national boundaries
Globalization
The trading of goods, services, and assets across national boundaries

30. Economic Equations
Most of the relationships we use in this course are expressed as linear equations of the form:
y = b + mx or y = 9 + 3x x y
___ 1 2 3 4 5 6

31. Economic graphs Graphs of one Variable - market shares
- bar graphs, pie charts
Figure 1A.1
Bar Graphs and Pie Charts

32. Economic graphs 2. Graphs of two Variables - price, quantity
- demand curve

33. Economic graphs Direct, or positive, relationship
- Graph slopes up from left to right
Inverse, or negative, relationship
- Graph slopes down from left to right
Slope = Rise
Run

34. Formulas
3. Percent change
new - old
old

35. 1. When an economist states that a good is scarce, he means that:
a. Production cannot expand the availability of the good.
b. It is rare.
c. Desire for the good exceeds the amount that is freely available from nature.
d. People would want to purchase more of the good at any price.
2) By definition, economics is the study of
A) how to make money in the stock market.
B) how to make money in a market economy.
C) the choices people make to attain their goals, given their scarce resources.
D) supply and demand.
3) How are the fundamental economic questions answered in a market economy?
A) The government alone decides the answers.
B) Individuals, firms, and the government interact in markets to decide the answers to these questions.
C) Households and firms interact in markets to decide the answers to these questions.
D) Large corporations alone decide the answers.

36. 4) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
A) engage in mutually beneficial trade with other nations.
B) increase the variety of products that it can consume with no increase in resources.
C) consume a combination of goods that lies outside its own production possibilities frontier.
D) produce a combination of goods that lies outside its own production possibilities frontier.
5) Households
A) have no influence on the circular flow in a market economy.
B) purchase resources in the factor market.
C) sell goods in the product market.
D) sell resources in the factor market.

37. True or False?
1. Highly-developed economies must make the basic economic choices, whereas less-developed economies produce so little that no choices are possible.
2. Households buy goods and services in output markets and sell factors of production in input markets.
3. In a planned economy, economic decisions are made by individual buyers and sellers.
4. In a command economy, goods and services go only to those who can pay for them with money earned from resources they own.
5. There is no difference between a market economy and a command economy in how income is distributed
6. Scarcity is a problem in a market economy but not a command economy.