1. An Economic Way of Thinking Unit One

2. What is Economics? …because the crucial and complex issues impacting your life today are largely economic in nature: Physical survival/Jobs Gas prices/energy crisis The environment World interdependence Terrorism Economics is the study of the use of SCARCE resources to satisfy unlimited human wants. WHY DO I NEED TO LEARN ABOUT ECONOMICS?

3. U.S. Economic Goals UNRESTRICTED DECISION MAKING

4. U.S. Economic Goals ECONOMIC EFFICIENCY – Best Use of Scarce Resource

5. U.S. Economic Goals ECONOMIC EQUITY

6. U.S. Economic Goals ECONOMIC SECURITY

7. U.S. Economic Goals FULL EMPLOYMENT

8. U.S. Economic Goals PRICE STABILITY

9. U.S. Economic Goals ECONOMIC GROWTH

10. Work with a partner to rank the U.S. economic goals from least important to most important - be ready to give an explanation of the reasons behind your ranking... 1.____ 2.____ 3.____ 4.____ 5.____ 6.____ 7.____ Why are these questions being asked? With your partner, discuss what the answers to these questions might tell you about a particular society/government

11. Adam Smith Adam Smith was a Scottish philosopher who became the “father of modern economics” He introduced a new way of thinking about economic ideas He wrote the book An Inquiry Into the Nature and Causes of the Wealth of Nations which was published in 1776

12. Wealth of Nations On of the main ideas of this book is that free market competition is the best way to create wealth; people acting in their own self-interest will benefit the society as a whole He introduced the idea of an “invisible hand” which guides the markets Advocated a Laissez-faire (hands off) approach from the government towards the economy These ideas form the basis for the capitalistic economic system

13. Economy and Scarcity What is an economy? A system used to manage limited resources What is scarcity? The condition that results from people having limited resources- anything used to produce an economic good or service and unlimited wants. http://www.youtube.com/watch?v=OS_9A_EA3 0M

14. Economic Enigmas If you could choose between two nearly identical products–one that is free and one that you have to pay for–which would you choose? Why? If you were opening a new business, would you select a location closer to or farther away from a business that sold similar or even identical product? Why?

15. Economic Terms Resource- anything used to produce an economic good. Microeconomics-looks at economic decisions made by individuals, households, and businesses Macroeconomics- focuses on the workings of the economy as a whole

16. Economic Terms Positive economics- focuses on how things are, data, facts, numbers Normative economics- focuses on how things ought to be; giving advice, making policy decisions, setting budgets, etc. http://www.youtube.com/watch?v=DOZ5nfgGTt I&list=PLBEgyQ49zuIegSWCemPQWxYjP3GlFBfN e

17. The Seven Principles of Economics Scarcity forces Tradeoffs (no Free Lunch)- you are giving up one thing to get another. Every choice involves tradeoffs for someone Costs vs. Benefits- The principle tells us that people choose something when the benefits of doing something are greater than the costs costs- are what you spend to get something (money, time, effort, etc.) benefits- are what you gain Cost benefit analysis is a tool economists use to calculate costs and benefits Turn to page 7 in your text

18. 7 Economic Principles Thinking at the Margin- most decisions we make involve either a little more or a little less not all or nothing Marginal Benefit- what you gain by adding one more unit of something Marginal Cost- what it costs to add one more of something Incentives Matter- costs and benefits influence our behavior, they act as an incentive Incentive- something that motivates a person to take a particular course of action; can be positive or negative http://www.youtube.com/watch?v=W2hhIWbz0Ns

19. 7 Principles of Economics Trade Makes People Better Off- by doing what we do well and trading with others for what they do well, we end up with better choices Markets Guide Trade-markets will generally do better than anyone or anything in coordinating exchanges between buyers and sellers markets- any arrangement that brings buyers and sellers together to conduct business

20. 7 Economic Principles Long Term Effects (Future Consequences)- decisions made today have consequences not only today but in the future as well; some of them will be unintended consequences

21. Economic Tools Data- factual information Variable- is a quantity that can change Graph- a visual representation of the relationship between two given sets of data

22. Economic Tools Y axis shows income levels x axis shows different years 1975-2005 Curve shows levels of education

23. Economic Models Economic model- a simplified representation of reality that allows economists to focus on one change at a time