1. ECONOMIC BASICS

2. Economics
The study of how people choose to allocate scarce resources to fulfill their unlimited wants.
Have students make a list of everything they want and everything they would like to do.
What stops them from doing and having these? Their income is limited. Money is not scarce. The ability to get the money is.
Now look at the list and decide what is needed to survive….students may add to the list.

3. Satisfying Needs and Wants

4. Needs Definition: Items that are necessary for survival. Examples:
Food, clothing, housing

5. Wants
Definition:
Items that are not necessary for survival, but add comfort and pleasure to our lives.
Examples:
diamond jewelry, soda, going to the movies, etc.
WANTS ARE UNLIMITED!!!

6. Goods vs. Services Goods Definition: Items you can see and touch.
Examples: Food items, clothing, recreational items, etc.
Services
Definition: An action that satisfies our wants through the efforts of other people or equipment.
Examples: Hair salons, law offices, restaurants

7. Where Do Goods and Services Come From?
Give each student a Hershey bar with almonds in it.
Activities
Have students clear their desk except for a clean sheet of paper and a pen or pencil.
Tell the students that they are to leave the candy bar on their desk until further instructions are given. Do not eat the candy bar until the end of the class.
Place one candy bar on each student’s desk.
Tell students that they are to list on paper everything that went into making the candy bar from the time someone had the idea for the candy until the consumer purchased the candy off the store shelf.
Write on the chalkboard or overhead projector each of the things that went into making the candy, as the class changes or modifies each thing on their paper. (Examples: sugar, ink on wrapper, idea, machinery, advertiser, trucks for hauling, electricity, etc. Usually, students will have fifty or more things.)
Explain the definitions for each of the four factors of production.
land
labor
capital
entrepreneurship
Ask for any questions about the definitions.
Have the students create a hypothetical timeline of the creation of the candy bar from start to finish. Instruct them to use four different colors, one for each factor of production.

8. The means through which goods and services are produced.

9. Natural Resources
Definition: all of the material that comes from the earth, the water, or the air are natural resources.
Examples: iron ore, gold, vegetables, fish, etc.
Back to other Factors of Production

10. Human Resources
Definition: The people who work to produce goods and services. (LABOR)
Examples: people who run farms, factories, and stores; people who design machines, announce television shows, etc.
Back to other Factors of Production

11. Capital Resources
Definition: the tools, equipment, and buildings that are used to produce goods and services
Examples: office buildings, factories, tractors, tools, delivery trucks, etc.
Back to other Factors of Production

12. 4th Factor: Entrepreneurship
This factor consists of the ideas and decisions of the business owner, or entrepreneur.
He or she is the initiator, the one who brings together the other factors of production to create value in the economy.
Show the pencil movie.

13. RESOURCES ARE LIMITED!!!
SCARCITY is the basic economic problem. Individuals, businesses and governments deal with this problem.

14. Review
The process of choosing which want, among several wants being considered at a certain time, will be satisfied is called...
economic decision making

15. Review economic resources or factors of production
The means through which we produce goods and services is called…
economic resources or
factors of production

16. Review the basic economic problem or scarcity
The problem– which faces individuals, businesses, and governments– of satisfying unlimited wants with limited resources is called…
the basic economic problem or scarcity

17. Review
Raw materials supplied by nature are called…
natural resources

18. Review capital resources
Tools, equipment, and buildings used in producing goods and services are called…
capital resources

19. Review
Things that are necessary for survival, such as food, clothing, and shelter are called…
needs

20. Review human resources or labor
The people who work to produce goods and services are called…
human resources or labor

21. Review
Things which are not necessary for survival but which add pleasure and comfort to our lives are called…
wants

22. Review
Things that satisfy our wants through the efforts of other people or equipment are called…
services

23. Review
Things that you can see and touch that can be purchased to satisfy our needs and wants are called…
goods

24. Economic Systems
All economic systems attempt to answer these fundamental questions:
What goods and services should be produced?
What quantity of goods and services should be produced?
How should goods and services be produced?
For whom should goods and services be produced?

25. DEALING WITH SCARCITY
Economies must choose a way to allocate, or distribute, the goods and services that are available to the people who need or want them.
Different economies have different ways of choosing which needs are satisfied and how many resources are used to satisfy those needs.

26. COMMAND ECONOMY
The government determines what, how, and for whom products and services are produced
Very little choice for consumers in what is available
Consumers will not be able to get exactly what they want

27. MARKET ECONOMY
Individuals decide what, how, and for whom to produce goods and services
Individual choice drives the market
If a good sells, it will remain on the market
Many styles and choices
Consumers have choices about what to buy
Businesses make choices about what to produce

28. The Free Enterprise System
People can choose what products to buy
People can choose to own private property
People can choose to start a business and compete with other businesses
ANOTHER NAME FOR MARKET ECONOMY

29. PROFIT MOTIVE
Making a profit is the primary incentive of free enterprise.
Profit is money that is left after all expenses of running a business have been deducted from the income.

30. COMPETITION It is good for consumers because…
It provides choices
It forces companies to improve quality and become more efficient
Should lead to a surplus, which will bring prices down.
Competition in price, quality, service, reputation

31. Supply and Demand
Consumers are motivated to buy goods and services that they need or want
Business owners are driven by the desire to earn profits
Together these two groups determine the prices and quantities of goods and services produced

32. Supply
Supply is how much of a good or service a producer is willing to produce at different prices.
As the price for a good
rises, suppliers are
willing to produce more
Imagine that you are a supplier of lawn-mowing services. Let’s ay that at a rate of $10 an hour, you are wiling to spend eight hours a week mowing lawns. If your neighbors are willing to pay just $1 an hour, you might decide not to bother mowing lawns at all. If, howerver, the going rate for lawn mowing rose to $50 an hour, you would proably increase the number of lawns you would mow. You might even try to round up friends to help you mow even more lawns.

34. Demand
Demand is an individual’s need or desire for a product or service at a given price.
As the price of the service or product decreases, consumers are willing to purchase more of the product or service.
Demand rises as the price falls.
Let’s say that you are interested in having your lawn mowed. At a rate of $10 an hour, you figure it is worth having your lawn mowed every two weeks. If however, the rate fell to just $5 an hour, you might be willing to have your lawn mowed every week.

36. When Supply and Demand Meet
These forces work together
The point at which the supply and demand curves meet is ….
EQUILIBRIUM PRICE AND QUANTITY

38. ABOVE EQUILIBRIUM PRICE
Above the equilibrium price, fewer people are interested in buying lawn-mowing services
The sellers will not be able to sell as much of their services

39. BELOW EQUILIBRIUM PRICE
Consumers would be happy to purchase lots of the service at these prices, but the suppliers are not willing to produce enough to meet their demand.

40. EQUILIBRIUM PRICE
Only at the equilibrium price does the amount consumers want to buy exactly equals the amount producers want to supply.

41. Supply and Demand Theory
If something is in heavy demand but in short supply, prices will go up. The rise in price will reduce demand and expand supply.
If D+ and S-, then P+

42. Supply and Demand Theory
If something is in heavy supply but in short demand, prices will go down. The fall in price will expand demand and contract supply.
If S+ and D-, then P-

43. Price Stabilization
Prices tend to stabilize at the level where demand equals supply.
If D=S, P stabilizes

44. Demand elasticity
The degree to which demand for a product is affected by its price

45. Elastic vs. Inelastic
Elastic demand – refers to situations in which change in price creates a change in demand
Inelastic demand – refers to situations in which a change in price has very little effect on demand for products (no substitutes, a need, price change is small relative to buyer’s income)
Ex: milk
COMPLETE ACTIVITIES ON WIKI…
Elastic Demand This measures how flexible your demand for a product is to economic changes. If money is tight and the price doesn’t change, you will buy less. If cheaper substitutes are available, you’ll buy those instead. If your economic condition is good, price won’t be as great a factor and you will buy more. Example: In good economic times, you might buy steak. In poor economic times you’re more likely to buy hamburger.
Inelastic demand measures how inflexible your demand is to a product as a

46. Competition and Price
In a competitive market, many suppliers compete for business so…
Buyers shop around for the best deal they can find.
THIS DRIVES THE PRICE DOWN!

47. MONOPOLY When a company controls all of a market
Can charge higher prices
Not supposed to happen in the U.S. (antitrust laws)
Markets with less competition can charge higher prices

48. OLIGOPOLY
A market structure in which there are just a few competing firms.
Ex: the car industry

49. BUSINESS CYCLE
Sometimes the economy grows, and at other times it slows down.
Business cycle – is the general pattern of expansion and contraction that the economy goes through
Growth-Prosperity-Recession-Depression
Recovery, Boom, Recession, Slump

50. Another Way to Think of the Business Cycle

51. The Business Cycle

52. The Fed reacts to these stages…
If the economy is growing to rapidly, inflation may occur.
Inflation – is an unhealthy jump in prices that slows consumer and business spending
This causes businesses to slow production and lay off workers.
Higher unemployment rates.
Govt. responds by lowering interest rates to encourage borrowing and spending

53. OPPORTUNITY COST
The cost of choosing one opportunity or investment over another.
Starting a business vs. receiving a guaranteed salary
Salary, benefits (medical insurance), vacation