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Fundamental Economic Concepts
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Lesson Two Basic Economic Concepts
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What are Goods? o Anything useful and tangible (Can actually touch) o i.e. – car, book, clothing, etc. o Some goods are intended for final use by us – these are called consumer goods Durable vs. nondurable goods Services o Any work that is performed for someone Consumers o When we use our goods and services to satisfy our wants and needs.
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Everything has value – the worth that can be expressed in dollars and cents Paradox of Value o Necessities vs. non necessities and their worth Utility o In order for something to have value it must have utility, or the capacity to be useful and provide satisfaction o Not measurable Varies from person to person Value and Wealth o The emphasis of monetary value is important to economists. o The value of something in dollars and cents is easily understood
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Wealth o Can be individual or national o The accumulation of products tangible, scarce, useful, and transferable to another person is wealth o Services are not considered wealth o Wealth we generate is made possible by the circular flow of economics o Key feature = Markets – a location where buyers and sellers can exchange a certain product. Adam Smith, who wrote “The Wealth of Nations” in 1776 said “if a country’s material possessions were taken away, its people, through their efforts and skills, could restore these possessions. On the other hand, if a country’s people were taken away, its wealth would deteriorate.”
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Factor Markets Product Markets Individuals Businesses Income from resources Payments for resources Business income Consumer spending Goods/ services Buy productive resources Four factors of production
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ACTIVITY Working in your groups, determine the meaning of the circular flow diagram. One person will write down your groups thoughts and comments. In conclusion, you must answer this question: o As a consumer, what role do you play in the circular flow of economic activity?
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WWhat do you think happens when the circular flow becomes larger?? WWhen our nations productivity increases over time we see economic growth oWoWhat is productivity? oToThe measure of the amount of goods and services produced within a given amount time with a given amount of resources. Only increase though when more can be produced with the same amount of resources.
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Define Human Capital? o The sum of peoples skills, abilities, andlth, knowledge, and motivation o Question – How can the government or Business invest in Human Capital? Government – Providing education and healthcare Business – training or other programs that improve the skills of their workers.
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Division of Labor and Specialization o Dividing a task into different parts can cause the task to be completed more efficiently o Deciding who can do things better, or specialize, is also more efficient o Examples???? Economic Interdependence o We are as dependent on other countries as they are on us o How can this be good? Gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.
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Activity o Write about ways that you are dependent on others and how others are dependent on you. o Circle which examples show economic interdependence and explain why?
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Lesson Three Economic Choices and Decision Making
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Trade-Offs o -Alternate choices o Decision making grid Forces you to consider alternatives Opportunity Costs o Cost of the next-best alternative o Everything else is a trade-off
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BlankSan FranciscoLos AngelesSeattle Climate Cost of living Number of game companies Crime rate It's a pleasant-looking city Distance from family
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Cars Clothing
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When the production of one item increases, the other item decreases
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Economic Models o A simplified equation, graph, or figure showing how something works. o All economic models are based on assumptions – things we think are true o Can be revised o If assumptions are correct, we can use again o If assumptions are wrong, chart can be changed to make better predictions.
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What is it? o A way of comparing the costs of an action to the benefits received o As a group, describe a scenario in which you would use a cost- benefit analysis to determine worth or value?????
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