Chapter 1 What Is Economics?

Transcription

1 Chapter 1 What Is Economics?

2 CHAPTER INTRODUCTION SECTION 1 Scarcity and the Science of Economics SECTION 2 Basic Economic Concepts SECTION 3 Economic Choices and Decision Making CHAPTER SUMMARY CHAPTER ASSESSMENT 2 Click a hyperlink to go to the corresponding section. Press the ESC key at any time to exit the presentation.

3 Chapter Objectives Section 1: Scarcity and the Science of Economics Explain the fundamental economic problem. Examine the three basic economic questions every society must decide. 3

4 Chapter Objectives Section 2: Basic Economic Concepts Explain the relationship among scarcity, value, utility, and wealth. Understand the circular flow of economic activity. 4

5 Chapter Objectives Section 3: Economic Choices and Decision Making Analyze trade-offs and opportunity costs. Explain decision-making strategies. 5

6 Click the mouse button to return to the Contents slide.

7 Study Guide (cont.) Key Terms scarcity economics need want factors of production labor entrepreneur production Gross Domestic Product (GDP) land capital financial capital 7 to display the information. Section 1 begins on page 5 of your textbook.

8 The Fundamental Economic Problem Scarcity is the condition where unlimited human wants face limited resources. Economics is the study of how people satisfy wants with scarce resources. Needs are required for survival; wants are desired for satisfaction. Someone has to pay for production costs, so There Is No Such Thing As A Free Lunch (TINSTAAFL). 8

9 Three Basic Questions What must we produce? Society must choose based on its need. How should we produce it? Society must choose based on its resources. For whom should we produce? Society must choose based on its population and other available markets. Figure 1.1 9

10 The Factors of Production Factors of production are resources necessary to produce what people want or need. Land is the society s limited natural resources landforms, minerals, vegetation, animal life, and climate. Capital is the means by which something is produced such as money, tools, equipment, machinery, and factories. 10

11 The Factors of Production (cont.) Labor is the workers who apply their efforts, abilities, and skills to production. Entrepreneurs are risk-takers who combine the land, labor, and capital into new products. Production is creating goods and services the result of land, capital, labor, and entrepreneurs. 11

12 The Factors of Production (cont.) Figure

13 The Scope of Economics Economics deals with the description of economic activity Gross Domestic Product, unemployment rate, government spending, tax rates, etc. Analysis looks at the why and how of economic activity why prices go up and down, for example, or how taxes affect savings. 13

14 The Scope of Economics (cont.) Explanation refers to how economists communicate knowledge of the economy and its activities to the society s population. Prediction refers to how yesterday s and today s economic activities advise us of potential future activity. 14

15 Section Assessment (cont.) List the three basic economic questions every society must answer. Every society must ask what to produce, how to produce, and for whom to produce. 15 to display the answer.

16 Section Assessment (cont.) Describe the factors of production. The factors of production are land, capital, labor, and entrepreneurs. 16 to display the answer.

17 Click the mouse button to return to the Contents slide.

18 Study Guide (cont.) Key Terms economic product good consumer good capital good service value paradox of value utility wealth market factor market product market economic growth productivity division of labor specialization human capital economic interdependence 18 to display the information. Section 2 begins on page 12 of your textbook.

19 Goods, Services, and Consumers Goods are items that are economically useful or satisfy an economic want. They are tangible and can be classified as consumer/capital and durable/ nondurable. Services are work performed for someone and are intangible. Consumers use goods and services to satisfy wants and needs. 19

20 Discussion Question Why do you think the United States has been called a society of consumption? Answers will vary. Students should support their opinions with examples. 20 to display the answer.

21 Value, Utility, and Wealth Value is worth expressed in dollars and cents. Scarcity by itself is not enough to create value. For something to have value, it must also have utility. Utility is a good s or service s capacity to provide satisfaction, which varies with the needs and wants of each person. Wealth is the accumulation of goods that are tangible, scarce, useful, and transferable to another person. Wealth does not include services. 21

22 The Circular Flow of Economic Activity Markets are locations/mechanisms for buyers and sellers to trade. They are classified as local, regional, national, global, and cyberspace. A factor market is where people earn their incomes. Factor markets center on the four factors of production: land, capital, labor, and entrepreneurs. A product market is where people use their income to buy from producers. Product markets center on goods and services. 22

23 The Circular Flow of Economic Activity (cont.) Figure

24 Productivity and Economic Growth Productivity is a measure of the amount of output produced by the amount of inputs within a certain time. Productivity increases with efficient use of scarce resources. Specialization and division of labor may improve productivity because they lead to more proficiency (and greater economic interdependence). 24

25 Productivity and Economic Growth Investing in human capital improves productivity because when people s skills, abilities, health, and motivation advance, productivity increases. Economic growth depends on high productivity. Yet, an economy s productivity may be affected by its interdependence reliance on others and their reliance on us to provide goods and services. 25

26 Section Assessment (cont.) Describe the circular flow of economic activity. 26 to display the answer.

27 Section Assessment (cont.) Explain why productivity is important to economic growth. When productivity goes up, more output is produced with the same amount of inputs in the same amount of time. 27 to display the answer.

28 Section Assessment (cont.) Making Comparisons What is the difference between a durable good and a nondurable good? A durable good lasts three or more years when used on a regular basis. A nondurable good lasts for less than three years. 28 to display the answer.

29 Click the mouse button to return to the Contents slide.

30 Study Guide (cont.) Key Terms trade-off opportunity cost production possibilities frontier cost-benefit analysis free enterprise economy standard of living 30 to display the information. Section 3 begins on page 19 of your textbook.

31 Introduction The process of making a choice is not always easy. Because resources are scarce, consumers need to make wise choices. To become a good decision maker, you need to know how to identify the problem and then analyze your alternatives. Finally, you have to make your choice in a way that carefully considers the costs and benefits of each possibility. 31

32 Trade-Offs and Opportunity Cost Trade-offs are the alternative choices people face in making an economic decision. A decision-making grid lists the advantages and disadvantages of each choice. Opportunity cost is the cost of the next best alternative among a person s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice. b4ee4 32

33 Trade-Offs and Opportunity Cost (cont.) Figure

34 Production Possibilities The production possibilities frontier diagram illustrates the concept of opportunity cost. It shows the combinations of goods and/or services that can be produced when all productive resources are used. The line on the graph represents the full potential the frontier when the economy employs all of these productive resources. Identifying possible alternatives allows an economy to examine how it can best put its limited resources into production. 34

35 Production Possibilities (cont.) Considering different ways to fully employ its resources allows an economy to analyze the combination of goods and services that leads to maximum output. An economy pays a high cost if any of it resources are idle. It cannot produce on its frontier and it will fail to reach its full production potential. Economic growth made possible by more resources, a larger labor force, or increased productivity causes a new frontier for the economy. 35

36 Production Possibilities (cont.) Figure 1.6 The Production Possibilities Frontier 36

37 Production Possibilities (cont.) Figure 1.6 The Production Possibilities Frontier 37

38 Production Possibilities (cont.) Figure 1.6 The Production Possibilities Frontier 38

39 Discussion Question How might economic growth stimulate greater production possibilities? Answers will vary. Students may indicate that with a larger labor force, more goods and services are created; newly discovered natural resources open up new products and services. 39 to display the answer.

40 Thinking Like an Economist Building simple models helps economists analyze or describe actual economic situations. Cost-benefit analysis helps economists evaluate alternatives by looking at each choice s cost and benefit. Taking small, incremental steps in implementing an economic decision helps economists test whether the estimated cost of the decision was correct. 40

41 Click the mouse button to return to the Contents slide.

42 Section 1: Scarcity and the Science of Economics The basic economic problem of scarcity is due to the combination of people s seemingly unlimited wants and relatively scarce resources. In a world of scarce resources, There Is No Such Thing As A Free Lunch (TINSTAAFL). Because of scarcity, society has to decide WHAT, HOW, and FOR WHOM to produce. Land, capital, labor, and entrepreneurs are the four factors of production required to produce the things that people use. 42

43 Section 1: Scarcity and the Science of Economics (cont.) Entrepreneurs are risk-taking individuals who go into business in order to make a profit; they organize the other factors of production. The scope of economics deals with description, analysis, explanation, and prediction. 43

44 Section 2: Basic Economic Concepts Consumers use goods and services to satisfy their wants and needs. Something has value when it has utility and is relatively scarce. Wealth consists of products that are scarce, useful, and transferable to others, but wealth does not include services, which are intangible. Markets link individuals and businesses in the circular flow of economic activity; the factors of production are traded in factor markets; goods and services are traded in the product markets. 44