Transcript EPP CHAPTER 1 - Social-Studies-with-Mr

ECONOMICS
IS STUDYING THE
WAY WE ACQUIRE
WHAT WE NEED AND
WANT!!!
HOW WE GET STUFF!
SCARCITY
ECONOMICS COURSE
2
SYLLABUS
I
CHAPTER
1
BASIC TERM AND IDEAS
II
CHAPTERS
4&5 DEMAND, PRODUCTION
& SUPPLY
III
CHAPTER
2 ECONOMIC SYSTEMS
IV
CHAPTER
3 ECONOMIC INSTITUTIONS
V
CHAPTER
INVESTMENT & PROJECT
ECONOMICS
I KNOW…
WHY STUDY
ECONOMICS?????
IT’S A REQUIRED COURSE!!!
DO ANY OF THESE RING A BELL?
BEN BERNANKE
BEN
BERNANKE???.
MARTHA
CHERNOBYL
1986
*
**
**
1989
*
PRINCE WILLIAM SOUND
•
QUESTIONS? WHY ARE GAS PRICES SO HIGH?
OPEC? OIL COMPANIES? DEMAND??????? KATRINA?
•
How high could they go? WHO KNOWS???
•
What can the government do?
PRICE CONTROLS? INCENTIVES?
•
What can be done to reduce U.S. dependence on foreign
oil? ENVIRONMENTALISTS … GOING GREEN!
HYBRIDS, DIESELS, FUEL CELL TECHNOLOGY
CHAPTER 1
INTRODUCTION
WHAT IS ECONOMICS?
SECTION 1
Scarcity and the Science
of Economics
SECTION 2
Basic Economic Concepts
SECTION 3
Economic Choices and
Decision Making
The Fundamental Economic Problem
Whether they are rich or poor, most
people seem to want more than they
already have.
The fundamental economic problem facing all
societies is that of scarcity.
*
Scarcity is the condition that results from
society not having enough resources to
produce all the things people would like to
have.
The Fundamental Economic Problem
• Scarcity affects almost every decision
we make.
Figure 1.1
Economics
is the study of how
people try to satisfy
what appears to be
seemingly unlimited and
competing wants
through the careful use
of relatively scarce
resources.
(cont.)
Basic Terms and Concepts
Economics can be broken down into two categories:
Macro-Economics- deals with the impact of
choices on the TOTAL level of economic
activity
FEDERAL RESERVES DISCOUNT RATE TO
ALL BANKS
Micro-Economics - focuses on choices made by
individual consumers and firms and
their impact on SPECIFIC markets
THE INTEREST RATE ON YOUR CHECKING ACCOUNT
Needs and Wants
• Economists often talk about people’s needs
and wants.
– A need is a basic requirement for
survival and includes food, clothing,
and shelter.
(Higher Order:, love, acceptance, hope,
knowledge, accomplishment)
– A want is a way of expressing a
need.
WANT- the means of expressing a need
Need = food
Want = pizza
(advertising presents wants as needs)
NEED = TRANSPORTATION
WANT= LAMBORGHINI
HIGHER ORDER
SPIRITUAL NEED FOR COSMIC
IDENTIFICATION
TRANSCENDENCE
SELF ACTUALIZATION
ESTHETIC
COGNITIVE
ESTEEM
ATTACHMENT
SAFETY
BIOLOGICAL
NEED - BASIC
FUFILL POTENTIAL
MEANINGFUL GOALS
ORDER BEAUTY
KNOWLEDGE
UNDERSTANDING NOVELTY
requirements for survival:
food, clothing, shelter
CONFIDENCE SENSE OF WORTH
COMPETENCE RESPECT
TO BELONG AFFILIATE TO LOVE AND BE
LOVED
SECURITY COMFORT TRANQUILITY FREEDOM FROM
FEAR
FOOD WATER OXYGEN REST SEXUAL EXPRESSION
RELEASE FROM TENSION
BASIC
“There Is No Such Thing as a
Free Lunch”
• Virtually everything we do has a cost–even
when it seems as if we are getting
something “for free.”
• Unfortunately, most things in life are not
free because someone has to pay for the
production in the first place.
In life, some things SEEM to be free! This
idea is known as the …
“FREE LUNCH CONCEPT”
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EXAMPLE= …. A FREE LUNCH! ……
(IN HOLLYWOOD… THEY DO LUNCH! ???)
There are COSTS involved.
They can include : production / farmers; transportation;
chef/cook; waiter/waitress etc.
Who pays for a "free
business" lunch?
But, eventually, someone must pay! WHO? .......
YOU!
CONSUMERS AND BUSINESSES
Who pays for a "free" school lunch? ... TAXPAYERS
*****So... remember..... “ T I N S T A A F L"
“There Is No Such Thing As A
Free Lunch”
Three Basic Questions
• We make decisions about the ways our
limited resources will be used.
• Because we live in a world of relatively
scarce resources, we have to make wise
economic choices.
WHAT to Produce
• The first question is that of WHAT to produce.
• A society cannot have everything its people
want, so it must decide WHAT to produce.
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HOW to Produce
• A second question is that of HOW to produce.
• Should factory owners use mass
production methods that require a lot of
equipment and few workers, or should they
use less equipment and more workers?
INDIA V. BELGIUM
FOR WHOM to Produce
• The third question deals with FOR WHOM
to produce.
“SWEDEN”
SAAB
VOLVO
•*
In the American free enterprise
economy, privately-owned businesses
and consumers, rather that the
government answer these three
questions!
1.WHAT TO PRODUCE
2. HOW TO PRODUCE
3. FOR WHOM TO PRODUCE
The Factors of Production
• The factors of production, or
resources required to produce the
things we would like to have, are land,
capital, labor, and entrepreneurs.
*
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factors of production
4 FACTORS OF
PRODUCTION***
(FOP)
****
--provide the
MEANS to produce and to
distribute goods and
services.
****--must be
PRESENT
for production to take
place.
&
The Factors of Production (cont.)
Figure 1.2

Land
In economics, land refers to the “gifts of
nature,” or natural resources not
created by humans.
Economists tend to think of land as
being fixed, or in limited supply.
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The problem of scarcity is likely to
become worse as populations grow in
the future.
Labor
• The second factor of production is labor–people with
all their efforts, abilities, and skills.
Capital
• Another factor of production is capital–the tools,
equipment, machinery, and factories used in the
production of goods and services.
• Such items also are called capital goods to
distinguish them from
financial capital, the money used to buy the tools
and equipment used in production.
Entrepreneurs
• Some people are special because they are
the innovators responsible for much of the
change in our economy.
• an entrepreneur, is a risk-taker in search
of profits who does something new with
existing resources.
• They provide the initiative that combines
the resources of land, labor, and capital into
new products.
Production
**Only when all factors of production
are present, production, or the
process of creating goods and
services, can take place.
The Scope of Economics
• Economics is the study of human efforts to
satisfy wants through the careful use of
scarce resources.
There are four key elements to this study:
description, analysis,
explanation, and prediction.
1)Description
Economics deals with the description of economic
activity.
For example, the Gross Domestic Product (GDP) is
the most comprehensive measure of a country’s total
output and is a key measure of the nation’s
economic health.
2)Analysis
In order to answer such questions, economics must
focus on the analysis of economic activity as well.
What exactly is happening??
The importance of analysis is that it helps us to
discover why things work and how things happen.
3)Explanation
Economics is also concerned with the explanation of
economic activity.
If we all have a common understanding of the way
our economy works, some economic problems will
be much easier to address or even fix in the future.
4)Prediction
Because economics deals with the study of what
is or what tends to be, it can help predict what may
happen in the future, as well as the likely
consequences of different courses of action.
Goods, Services, and Consumers
• Economics is concerned with economic
products –goods and services that are
useful, relatively scarce, and transferable
to others.
Goods
• The first type of economic product is a
good –a tangible item that is economically
useful or satisfies an economic want.
Goods
– A consumer good is intended for final use by
individuals.
– When manufactured goods are used to produce
other goods and services, they are called capital
goods.
– Any good that lasts three years or more when used
on a regular basis is called a durable good.
– A nondurable good is an item that lasts for less
than three years when used on a regular basis.
Services
• The other type of economic product is a
service, or work that is performed for
someone.
• The difference between a good and a
service is that a service is intangible, or
something that cannot be touched.
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Consumers
• The consumer is a person who uses goods
and services to satisfy wants and needs.
3 TYPES {ADD}
•INDIVIDUALS (I)
•BUSINESSES (B)
•GOVERNMENT (G)
• As consumers, people indulge in consumption,
the process of using up goods and services in
order to satisfy wants and needs.
CONSPICOUS CONSUMPTION-
the use or acquisition of goods and services solely
to impress others
Value, Utility, and Wealth
• In economics, value refers to a worth that
can be expressed in dollars and cents.
• Why, however, does something have value,
and why are some things worth more than
others?
$$$$$$
Paradox of Value
•The paradox of value is the situation where some
necessities, such as water, have little monetary
value, whereas some non-necessities, such as
diamonds, have a much higher value.
Utility • It turned out that for something to have
value, it must also have utility, the capacity
to be useful and provide satisfaction.
• The utility of a good or service may vary
from one person to the next.
Wealth • Wealth, is the accumulation of those
products that are tangible, scarce, useful,
and transferable from one person to
another.
The Circular Flow of Economic Activity
• The wealth that an economy generates is
made possible by the circular flow of
economic activity.
• The key feature of this circular flow is the
market, any arrangement that allows
buyers and sellers to exchange a certain
economic product.
Factor Markets
• How does this circular flow operate?
• Individuals earn their incomes in factor
markets, the markets where productive
resources are bought and sold.
Product Markets
• After individuals receive their income from
the resources they sell, they spend it in
product markets.
• These are markets where producers sell
their goods and services to consumers.
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INDIVIDUALS
YOU
INSIDE FLOW
PRODUCT MARKETS
FOR
CONSUMERPRODUCTS
FACTORS OF
PRODUCTION
GOODS &
SERVICES
BUSINESS
ORGANIZATIONS
IBM
FACTOR MARKETS
FOR PRODUCTIVE
RESOURCES
Productivity and Economic Growth
• Economic growth occurs when a nation’s
total output of goods and services
increases over time.
(GNP,GDP)
• This is described by the term productivity,
which is a measure of the amount of output
produced by a given amount of inputs in a
specific period of time.
• Productivity goes up whenever more output
can be produced with the same amount of
inputs in the same amount of time.
Division of Labor and Specialization
• Division of labor and specialization can
improve productivity.
– Division of labor takes place when
work is arranged so that individual
workers do fewer tasks than before.
– Specialization takes place when
factors of production perform tasks
that can be done relatively more
efficiently than others.
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Productivity
Cars/day
Fixed capital
costs
Cost\cars
per day
1
$100,000
$100,000
2
$100,000
$50,000
5
$100,000
$20,000
10
$100,000
$10,000
Economy of Scale = the more you PURCHASE the better
the PRICE!
ADAM SMITH (1723-1790)
SCOTTISH ECONOMIST
"Wealth of Nations" 1776
Championed the new middle class as a
result of the industrial revolution.
BELIEVED:
a. that government should not have a large role in the
economy. It should only be involved in national defense,
courts, internal improvements and education. Therefore,
private enterprise should be free from ALL government
interference =
LAISSEZ-FAIRE.
You’re on your own!!
b.
that individuals, acting naturally in their own selfinterests would bring about the greatest good for
society.
Greed is good!” – (M. Douglas in Wall Street)
c. in the concept of the "invisible hand" whereby
competition + the free marketplace (S/D) would
guide resources to their most productive uses.
d. that the "mercantilist view" that wealth consisted solely of
money was incorrect. In "Wealth of Nations" he stated that
source of wealth consisted of all of the goods and services
that were produced by labor and then consumed by all.
e. in international trade because it was natural for people to
trade freely with each other. Trade makes labor more
productive and increases a nation's wealth. He was a strong
proponent of the concept of "voluntary exchange".
Smith was the first to notice that labor became more productive
as each worker becomes more skilled at a single job. He felt
that new machinery + division of labor
+ specialization increase in productivity
and even greater wealth for a nation.
Introduction
• The process of making a choice is not
always easy.
Trade-Offs and Opportunity Cost
• There are alternatives and costs to
everything we do.
• In a world where “there is no such thing as
a free lunch,” it pays to examine these
concepts closely.
• People face trade-offs, or alternative
choices, whenever they make an economic
decision.
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OPPORTUNITY COST
• To an economist cost often means more than the
price tag placed on a good or service.
• Instead, economists think broadly in terms of
opportunity cost–the cost of the next best alternative
use of money, time, or resources when one choice is
made rather than another.
In order to gain something, you must be willing to give
something up!
PRODUCTION POSSIBILITES
• A popular model economists use to illustrate the
concept of opportunity cost is the production
possibilities graph.
Production Possibilities
A popular model economists use to illustrate the
concept of opportunity cost is the production
possibilities graph.
This is a diagram representing various
combinations of goods and/or services an
economy can produce when all productive
resources are fully employed
CAN THIS BE?
A classic example is a mythical country called
“Alpha” which produces two goods–guns
and butter.
ALPHA
IT DEMONSTRATES
THE RELATIONSHIP
OF RESOURCES TO
PRODUCTION
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14
14
12
12
10
10
8
GU
NS
OPPORTUNITY COST
IS ILLUSTRATED BY
THE PRODUCTION
POSSIBILITIES
GRAPH.
6
5
4
2
0
1
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75
120
SO … WHAT HAPPENEDBUTTER
TO IT ?
0
150
OPPORTUNITY
COST
is expressed in
terms of tradeoffs,
or in terms of things
given up in order to
get something else.
IT INVOLVES MAKING
DECISIONS BY USING
LOGICAL ANALYSIS
TO RECOGNIZE AND
EVALUATE THE
MAKING OF CHOICES
ON ALTERNATIVES
CONE MILLS
COMPANY’S
PROBLEM
FOREIGN COMPETITION
•LOWER LABOR COSTS
•NO HEALTHCARE
•NO SAFETY REGULATIONS
WORKER’S HEALTH
& SAFETY
LOSS OF
PROFITS
POSSIBLE SOLUTIONS???
TARIFFS?
BANKRUPTCY =
LOSS OF JOBS
UNIVERSAL HEALTHCARE?
Employ Cost-Benefit Analysis
• Most economic decisions can be made by using costbenefit analysis, a way of thinking about a problem
that compares the costs of an action to the benefits
received.
IS IT WORTH SPENDING $5.4 MILLION PER MINUTE
FOR TV ADVERTISING DURING THE SUPER BOWL?
• Businesses choose to invest in projects which give the
highest return per dollar spent. State and local
governments also use cost-benefit analysis to
evaluate the effectiveness of public programs.
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The Road Ahead
• Economics includes the study of how things
are made, bought, sold, and used.
• It provides insight as to how the economy
works on a daily basis.
• It also provides a more detailed
understanding of a free enterprise
economy.
• This is one in which consumers and
privately owned businesses, rather than
the government, make the majority of the
WHAT, HOW, and FOR WHOM decisions.
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Topics and Issues
• The study of economics will provide a
working knowledge of property rights,
competition, supply and demand, the price
system, and the economic incentives that
make the American economy function.
• Along the way, topics such as
unemployment, the business cycle,
inflation, productivity, and economic growth
will be covered.
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Economics for Citizenship
• The study of economics helps us to
become better decision makers–both in our
personal lives and in the voting booths.
• The study of economics will not provide you
with clear-cut answers to all questions, of
course, but it will give you a better
understanding of the issues involved.
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