Basic Economic Concepts. Section 1 Module 1 The Study of Economics

Transcription

1 Basic Economic Concepts Section 1 Module 1 The Study of Economics

2 THERE IS NO SUCH THING AS A FREE LUNCH Basically, this means that there is a cost to everything. Even though someone might get something free someone else had to pay for it. Every worker involved in the process of production and distribution got paid along the way

3 Macro vs. Micro Macroeconomics Concerned with the overall ups and downs of the economy Example How many people are employed in the economy as a whole? Microeconomics How people make decisions and how those decisions interact Example Should I go to college or get a job after high school?

4 What is Economics? The study of scarcity and choice Scarcity: when resources are in short supply to satisfy all the various ways a society wants to use them. Individual Choice: the decision by an individual of what to do, which necessarily involves a decision of what not to do. Can you buy everything you want at Walmart? limited by: money (budget) living space (where will I put this stuff?)

5 SCARCE In order for something to be considered scarce it must meet three criteria 1. be limited in quantity 2. be desirable 3. have more than one valuable use

6 Examples OIL gasoline 6

7 Examples WATER 7

8 Examples trash 8

9 Incentives Rewards or punishments that motivate particular choices Charging higher prices when there is a shortage of something, thus keeping more profits Property Rights Establish ownership and grant individuals the right to trade goods and services with each other Creates incentive to put resources to their best possible use (example: lake)

10 Two Major Types of Economies Market Economy Command Economy Decisions of individual producers and consumers largely determine what, how, and for whom to produce, with little government involvement Example: United States, Japan Industry is publicly owned and central authority (govt.) makes production and consumption decisions Example: Soviet Union, Cuba

11 Marginal Analysis Study of costs and benefits of doing a little bit more of an activity versus a little bit less Marginal Benefit The gain of doing something one more time Marginal Cost The cost of doing something one more time If the marginal benefit of making another car, reading another page, or buying another latte EXCEEDS the marginal cost, the activity should continue. Otherwise it should not

12 Resource Anything that can be used to produce something else a.k.a. Factors of Production

13 Factors of Production 1. Land: all resources that come from nature (minerals, timber, petroleum)

14 Factors of Production 2. Capital: manufactured goods used to make other goods and services (machinery, manufacturing, tools)

15 Factors of Production 3. Labor: the effort of workers (employees)

16 Factors of Production 4. Entrepreneur: individuals involved in risk taking, innovation, and the organization of resources for production

17 Richard Branson

18 Trade-Off and Opportunity Cost Trade-Off: when you give up something in order to have something else Opportunity Cost: the real cost of an item: what you must give up in order to get it.

19 What to do on a Saturday night? 1. Go to the movies with friends 2. Go out on a hot date 3. Eat at your favorite restaurant with family 4. Stay at home and watch television 5. Study notes from your favorite class PLAN A or PLAN B

20 Tale of Two Cities Mission Go to Senior Prom with that special someone Dallas In the wedding of your favorite cousin Once in a lifetime Once in a lifetime? PLAN A or another PLAN A

21 Positive vs. Normative Economics Positive Analysis that describes the way the economy actually works Normative Makes prescriptions about the way the economy should work Definite right or wrong answers Subject to opinion Toll roads

22 Cost-Benefit Analysis a decision-making process in which you compare what you will sacrifice and gain by a specific action Taking parents car without permission Cheating on a test Stealing money or merchandise from your job Practical Jokes 22