Transcript WHAT IS ECONOMICS

WHAT IS ECONOMICS
ECONOMICS IS ABOUT
CHOICE
LIMITED RESOURCES
VERSUS UNLIMITED
WANTS
1
QUESTIONS TO BE ANSWERED BY AN ECONOMIC SYSTEM
OCCUPATIONS OF PEOPLE
EARNINGS OF PEOPLE
SPENDING OF PEOPLE
STANDARD OF LIVING OF
PEOPLE
2
FUNDAMENTAL ISSUE
FREEDOM FOR INDIVIDUALS TO
USE THEIR RESOURCES AS THEY
WISH
VERSUS
RULES, REGULATIONS, AND
RESTRICTIONS TO ENSURE
SOME LEVEL OF EQUALITY OF
RESOURCES AND OUTCOMES
3
ONE WAY TO SOLVE – COMMAND ECONOMY
SINGLE PERSON OR
CENTRAL AUTHORITY
MAKES THE DECISIONS
ABSOLUTISM
4
OTHER WAYS – VARIOUS FORMS OF
“COLLECTIVE CHOICE”
SOCIALISM
COMMUNISM
FASCISM
5
THE SYSTEM WE WILL STUDY: CAPITALISM
“CAPITAL”: PHYSICAL
AND HUMAN RESOURCES
CAPITALISM EMPHASIZES
INDIVIDUALS MAKING
CHOICES ABOUT THEIR
RESOURCES AS THEY SEE
BEST
6
ALSO CALLED THE MARKET, OR PRICE, SYSTEM
BASED ON “INCENTIVES”
CONSUMERS’ INCENTIVE
TO IMPROVE THEIR LIVES
BUSINESSES’ INCENTIVE
TO MAKE PROFITS
7
THE TWO INCENTIVES COME TOGETHER
BUSINESSES MAKE
MONEY BY GIVING
CONSUMERS WHAT
THEY WANT
CONSUMERS
“REWARD” BUSINESSES
WHO DO AND
“PUNISH” BUSINESSES
WHO DON’T
8
BUT HOW DO RESOURCES GET
ALLOCATED IN THIS SYSTEM?
BY “PRICE” –
CONSUMERS WANT MORE
OF SOMETHING – PRICE UP –
SIGNAL TO BUSINESSES TO
MAKE MORE
CONSUMERS WANT LESS
OF SOMETHING – PRICE
DOWN –SIGNAL TO
BUSINSSES TO MAKE LESS
9
RESOURCES MOVE TO
WHERE THEY ARE
HIGHEST VALUED – BY
PRICE – WITHOUT ANY
CENTRAL AUTHORITY
BEING INVOLVED
(“The Wealth of Nations”)
10
SUPPLY AND DEMAND
SUPPLY – BUSINESSES
– MAKING AND
SELLING PRODUCTS
AND SERVICES
DEMAND – BUYERS –
CONSUMERS –
PURCHASING
PRODUCTS AND
SERVICES
11
EXAMPLES
NATURAL DISASTER – PRICES RISE FOR
EQUIPMENT AND NECESSITIES –
MOTIVATES NEW SUPPLIES SENT
RECENT “HOUSING GLUT” – PRICES
FALL – MOTIVATES BUILDERS TO
REDUCE CONSTRUCTION
OIL AND GAS PRICES HIGH AS WORLD
DEVELOPS – MOTIVATES CREATION OF
“ALTERNATIVE FUELS” AS WELL AS
NEW TECHNIQUES FOR FINDING
“TRADITIONAL” FUELS
12
“OPPORTUNITY COST” – NOTHING IS FREE
DEFINITION – BENEFIT THAT GIVE
UP BY NOT USING RESOURCES IN
ANOTHER WAY
STUDY VERSUS PLAY
SLEEP VERSUS CLASS
BUY SHOES VERSUS BUY SHIRT
REMODEL BATHROOM VERSUS
BUY VEHICLE
WORK VERSUS HOME FOR
CHILDREN
13
SO CAPITALISM PUTS EMPHASIZE ON INDIVIDUAL CHOICE AND
INDIVIDUAL ACHIEVEMENT
QUESTION 1: WILL THIS RELIANCE
ON INDIVIDUAL MOTIVATION
MAKE THE TOTAL ECONOMIC
“PIE” LARGER THAN WITH OTHER
SYSTEMS?
14
QUESTION 2
WILL CAPITALISM RESULT IN
MORE INEQUALITY OF
RESULTS, AND IF SO, HOW
ADDRESS?
* INCOME REDISTRIBTION?
* FOCUS ON OPPORTUNITY?
15
MICROECONOMICS
“SMALL
ECONOMICS” –
ECONOMICS OF
INDIVIDUAL
HOUSEHOLDS ,
CONSUMERS,
WORKERS, AND
BUSINESSES
16
MACROECONOMICS
“BIG ECONOMICS”
– NATIONAL AND
INTERNATIONAL
ECONOMICS AND
ECONOMIC
POLICY
17
WHY DOES ECONOMICS FOCUS ON MONEY?
EASY AND COMMON
WAY TO MEASURE
RESOURCES
DOESN’T MEAN
IGNORE ITEMS THAT
CAN’T EASILY BE
MEASURED WITH
MONEY
18
A LOOK AHEAD
BENEFIT/COST ANALYSIS
PRICES AND TIME
SPECIALIZATION AND
TRADE
COMPETITION
19