Transcript Presentation

Economics & Finance
What is Economics?
Econ
Economy
Economics
Econometrics
Econometric Forecasting
Economize
Study of how Societies Allocate Scarce Resources
Chapter 1 Section 1
Scarcity and the Science of Economics
 TINSTAAFL
 There Is No Such Thing AS A Free Lunch
OK….. Prove Me Wrong!!
Chapter 1 Section 1Terms:
 Economics
 Study of How Societies Allocate Scarce Resources
 Need
 Basic requirement for survival:
 Food, Clothing, Shelter
 Want
 A way of expressing a need:
 Pizza or other “favorite food”
Chapter 1 Section 1Terms:
 Scarcity
 Situation that arises
when unlimited wants
are met with limited
resources
 Unlimited Wants
 Scarce Resources
Scarcity
Choices
What to
Produce
How to
Produce
For Whom
to Produce
Chapter 1 Section 1Terms:
 Scarcity vs Shortages
 Shortages occur when producers won’t or can’t offer
goods or services at the current price.
 Shortages can be temporary (holiday) or long-term
(war or drought).
 Scarcity exist when wants/needs are greater
than resource supply.
 Can change long-term when new resources are
discovered or new technologies make greater use of
existing resources.
Chapter 1 Terms cont.
In order to satisfy Needs & Wants utilizing Scarce
Resources, we must employ the:
 Factors of Production
 Land, Labor, Capital and Entrepreneurs
 Each of these resources are SCARCE!
 Land
 “Gifts of Nature” or Natural Resources including:
fertile soil, forests, mineral deposits, livestock,
sunshine etc.
Chapter 1 Terms cont.
 Labor
 People: Physical efforts put forth to produce goods
and provide services.
 Includes all people who contribute to production
except “Entrepreneurs”
 Subject to change in supply due to:
 Population growth
 War
 Disease etc.
 Capital (or Capital Goods)
 Physical Capital : Tools, equipment, machinery, and
factories used in production.
 Human Capital: Investment in self through education,
training, internship/experience.
Chapter 1 Terms cont.
 Entrepreneurship
 Innovator
 Risk Taker
 Profit Seeker
 Production
 When all factors of production: Land, Capital,
Labor and Entrepreneurship are present
 Production of Goods & Services takes place
End Chpt 1 Section 1
Chapter 1 Section 1 Assessment
 1. Describe an Economic:
 Good
 Service
 Combination
 2. Why is the idea of Scarcity a starting point for
thinking economically?
 3. Describe a situation of Scarcity
 3b.Describe a situation of Shortage
 4. Describe the 3 (4) Factors of Production,
explaining the role of the Entrepreneur
Chapter 1 Section 1 Assessment
5. What special advantages does Physical Capital
offer?
(The book lists three distinct advantages. Come up with a 4th!!)
Economic Choices and Decision
Making:
 Trade-Offs & Opportunity Cost
 Trade-Offs
 Alternative choices forgone in each economic decision
(Figure 1.5 in text)
 Opportunity Cost
 Cost of the next best alternative when one choice is made
over another. (See cartoon page 21)
 Production Possibilities Frontier
 Diagram representing various combinations of goods
and/or services an economy can produce when all
productive resources are fully employed.
Decision Making Grids
Economic Choices and Decision Making:
 Process for designing PPF
 Identifying Possible Alternatives
 Cost of Idle Resources (point “e”)
A
Alternative Possibilities
a
Guns
70
e
40
d
Fully
Employed
Resources
b
Production can take
place anywhere on or
inside the frontier.
c
300
Butter
Economic
Growth
could take
us here
400
Economic Choices and Decision Making:
C
Economic Growth
d
Guns
a
b
Increased productivity
And additional factors
of production expand
Production possibilities
c
Butter
Economic Choices and Decision Making:
 Opportunity Cost
B
Opportunity Cost
a
Guns
70
b
40
The opportunity cost
Of producing 100 units
Of butter is the 30 guns
given up
c
300
Butter
400
Economic Choices and Decision Making
cont.
 Thinking Like an Economist
 Build Simple Models
 Alternative Possibilities
 Opportunity Cost
 Economic Growth
Economic Choices and Decision Making
cont.
 Employ Cost Benefit Analysis
 Cost Benefit Analysis
 Incremental Steps
Economic Choices and Decision
Making cont.
 The Road Ahead
 Free Enterprise Economy
 Topics & Issues
 Standard of Living
 Economics & Citizenship
 Making the Rational Choice
Scope of Economics
 Description
 Gross Domestic Product (GDP)
 Dollar value of all “FINAL” goods and services, structures
produced within a country’s borders in one year
 Most comprehensive measure of a country’s total output
 Key measure of nation’s economic health
 Other Key Measurements:
 Unemployment rate
 Inflation
 International trade
 Business/Labor relations
 Government spending
Scope of Economics cont.
 Analysis
 Examination of information summarized in studies
and presented:
 Graphs, Charts, Reports etc.
 Explanation
 Communication of Information gained through
analysis to others so that action can be taken
 Prediction
 Forecasting economic trends so that action can be
taken to avoid excessive unemployment and inflation
 Stabilize the economy
Group Activity
Pair up with
ONE
other person
Your Island
Team member names
What You’ll Produce
(Must be TWO Products or
Services)
 List……
 Quantity ea.
How You’ll Produce it…
 Manufacture
 Grow
 Factory/Handmade
 Etc…
Who Gets It??
 Rich
 Poor
 Middle Class
List your Factors of Production
 Land - Describe
 Labor - Describe
 Capital – Describe
 Entrepreneurs - Describe
Production Possibilities Curve
 Create a curve and animate the following:
 Production Possibilities Frontier
 Movement along the curve = Change in
allocation of resources
 Shift in Curve = Change in resources or
technology
 Show a point of inefficiency
 Explain your Graph!
10
% Entrepreneurs by Population
6.8
Canada
Finland
1.4
France
1.8
Denmark
2
Germany
2.2
Britain
3.3
% Entreprenuers In
Population
8.5
U.S.
Chapter 1 Terms cont.
 Goods
 Item that is economically useful or satisfies an
economic “want”
 Book, CD, Ipod etc.
 Consumer Good
 Intended for final use by individuals
 Capital Goods
 Manufactured goods intended to be used to
produce other goods
Chapter 1 Terms cont.
 Services
 Work that is performed for someone to satisfy
an economic “need” or “want”
 surgery, haircut, home repair etc.
 Consumer
 Person who uses goods and services to
satisfy wants and needs.
 Consumption is the process of using up goods to
satisfy wants and needs.
Chapter 1 Terms cont.
 Value
 Worth that can be expressed in dollars and cents
 Paradox of Value
 Some necessities, such as water, have little monetary value
 Some non-necessities, such as diamonds, have great monetary value.
 Scarcity is a major factor in determining value
 If there was only enough water remaining for a small number of people, then people
would pay truck loads of diamonds for a single gallon!
 Utility




For a good to have value, it must also have utility
Capacity to be useful and provide satisfaction
Not fixed or measurable, like weight or height
Varies from one person to another
 Therefore, In order to have value, a good must both be scarce and have
utility
Chapter 1 Terms cont.
 Wealth
 Accumulation of those products that are
tangible, scarce, useful and transferable from
one person to another
 Nation’s wealth is comprised of all items in the
economy: homes, factories, footballs, clothing
etc.
 Services are not counted as wealth because:
 They are intangible
The Circular Flow of
Economic Activity
Product
Markets
Business
Income
Consumer
Spending
Goods
Services
Goods
Services
Individuals
Businesses
Buy
Productive
Resources
Payments for
Resources
Land
Capital
Labor
Entrepreneurs
Factor
Markets
Income from
Resources
The Circular Flow of
Economic Activity
 Factor Markets
 Where productive resources are bought and
sold
 Where individuals earn incomes
 Product Markets
 Where producers sell their goods and
services to consumers
 Where people spend their incomes
Productivity & Economic Growth
 Economic Growth
 Occurs when nation’s total output of goods
and services increases over time.
 The circular flow of Economic Activity
becomes larger
 More factors of production, goods, and services
flow in one direction
 More payments flow in the opposite direction
 Productivity
 When scarce resources are used efficiently
Productivity & Economic Growth
 Division of Labor (Specialization)
 When work is arranged so workers do fewer
tasks than before
 Model T Assembly line production
 Specialization:
 When factors of production perform tasks that they
can do relatively more efficiently than others
 Investing in Human Capital
 Human Capital
 Sum of the skills, abilities, health, and motivation of
people.
 Investment through: Health care, training,
education, motivation
Productivity & Economic Growth
 Investing in the Future
 Investments in both human and physical capital
 Long-term approach to profit making
 Economic Interdependence
 We rely on each other to produce the goods and
services we need/want
 Everything is CONNECTED!
Effect of Education on Income
Average Income For
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
Education level
Males
Less Than 9th Grade
9th to 12th Grade (no diploma)
High School Graduate
Some College, no degree
Associate Degree
Bachelor’s Degree
Master’s Degree
Professional Degree
Doctorate Degree
$22,746
$27,638
$32,611
$39,367
$40,465
$55,832
$71,225
$120,052
$93,106
Females
$14,957
$18,594
$22,656
$26,562
$29,776
$37,319
$46,072
$74,077
$60,468
Father of Economic study
Adam Smith 1723 – 1790
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Kirkcaldy, Scotland
Friend of Benjamin Franklin
Wealth of Nations
The Invisible Hand
 Each individual “intends only his own gain, and he
is in this…led by an invisible hand…
Three Basic Economic Questions:
 What to produce?
 Given the limited resources we have, what
exactly should we produce?
 How should we produce it?
 Mass Production?
 Hand crafted?
 For Whom should we produce?
 Professionals? Workers? Government?
On a Piece of Paper…
 List some examples from your life that
involve Scarcity and the Economic
Choices you’re forced to make.
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What decisions did you make?
Were they based on Needs, Wants or Both?
What were the deciding factors?
Were the decisions based on Short Term or
Long Term Factors?
 Were you able to have it all????