Transcript What is Economics?

What is Economics?
Chapter 1
Scarcity and the Science of
Economic
The Fundamental Economic Problem
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Scarcity - Video (3 min)
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Needs and Wants
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fundamental economic problem facing all societies; not having enough
resources to satisfy all wants and needs
Need – basic element for survival
Want – everything else
TINSTAAFL
Three Basic Questions
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WHAT to produce?
HOW to produce?
FOR WHOM to produce?
Scarcity
The Factor of Production
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Land – “gifts” of nature
Labor – people with all their abilities and skills
Capital – tools, equipment, machinery in the production of goods/services
Entrepreneurship – someone willing to take a risk
The Scope of Economics
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Description (ex. GDP)
Analysis (ex. How do taxes affect people)
Explanation
Prediction
Basic Economic Concepts
Goods, Services and Consumers
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Goods
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Services
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Consumer goods
Durable goods
Nondurable goods
Goods are tangible items you can touch and feel
Haircuts, home repair, servers, teachers, etc.
Consumers
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People who use goods and services to satisfy their needs and wants
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Value, Utility and Wealth
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Paradox of Value
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Utility
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For something to have value, it must have utility.
Being useful and giving satisfaction; very subjective
Value
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Adam Smith noticed that some necessities such as water and air have
very low monetary value. Some nonessentials, such as diamonds have
a high value.
For something to have monetary value, it must be scarce and have utility.
Being useful and giving satisfaction; very subjective
Wealth
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The accumulation of products that are tangible, scarce, useful and transferable
from person to person
The Circular Flow of Economic Activity
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Markets allow buyers and sellers to exchange a specific product.
Markets may be local, national, or global – can exist in cyberspace
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Factor markets (factors of production are bought and sold)
Product markets (After income is earned, consumers spend money on products)
Productivity and Economic Growth
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Productivity
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Investing in Human Capital
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Goes up whenever more can be produced w/ same amount of resources
Sum of peoples skills, abilities, health, knowledge and motivation
Individuals can invest in themselves - college
Division of Labor and Specialization –
Each worker completes a part of the sum
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A worker becomes highly skilled in a certain area
Economic Interdependence
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We rely on others, others rely on us
Economic Choices and
Decision Making
Trade-offs and Opportunity Cost
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Trade-Off – alternative that is available whenever a choice is to be made
Opportunity Cost – cost of the next best alternative use of money, time, or
resources when making a choice
Opportunity Cost
Production Possibilities
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Production possibilities frontier – is a diagram representing various
combinations of goods and services an economy can produce when all its
resources are in use.