Transcript Economics - BussiereHistory

Do Now: What do you think this quote means?
“There’s no such thing as
a free lunch.”
1) Everything has a cost to it
2) The cost can come from you or
someone else
3) The cost can be money, time, and the
things you are NOT getting
What is Economics?
1) The study of how people satisfy their needs and
wants through the choices that they make
2) Study of the production and consumption of
goods and services
Includes:
jobs/employment
trade
business/commerce
money (and how it is spent)
Needs vs. Wants
Need – basic requirement for survival
Needs can also be immaterial (love, acceptance, success)
Want – a means of expressing a need
(Ex. Food is a need, Pizza is a want)
EVERYTHING ELSE that is not a need (ex: cell phones, cars)
Often, wants are advertised as needs
(we think that our wants are things we need)
Is it a Need or a Want?
Resources
 Goods – something that can be touched
 Services – work performed
However, there are a limited amount of
resources available
The Basic Economic Problem
Unlimited Wants
Limited Resources
SCARCITY
Scarcity
 Because of scarcity, people must make choices on how
to spend/distribute resources
1) WHAT to use the resources for
2) HOW to use the resources
3) WHO will have the resources
If you had a 25th hour, what would you do?
1st Choice 2nd Choice
All other
choices
Opportunity Cost
• What you are giving up (the cost of the
opportunity)
• The value of the runner-up, the second choice
• It can be both positive and negative
1st Choice
2nd Choice
Opportunity Cost
All other
choices
 Ex. You have $300

=
(Opportunity Cost)
 All other choices are called trade offs
1st Choice
2nd Choice
All other choices
Trade-off
“Factors of Production”
Something that is used to produce and distribute goods
and services
When all three are present, PRODUCTION can
occur
1) Land
- space/area
- natural resources (wood, coal, oil)
- limited supply
2) Labor
- people to work/human resources
- can vary through quantity of people
and quality of workers
3) Capital - something used for production
Physical Capital: man-made resources used
(tools, factories, machines)
Human Capital: Knowledge, skills
and abilities workers gain through
education and experience
Physical
Capital
Human
Capital
4) Entrepreneurship
• - leaders who decide how to combine Land, Labor and
Capital to make new or innovative goods and services
• - take risks to start new companies and develop new ideas
• - Invest their time and money to help the economy grow
Supply & Demand
The most important factor you consider
before you buy a good or service
PRICE
Consumer (buyer): users of goods/services
Producer (supplier, seller): create, market,
and sell goods and services
Market: The place where consumers
and producers meet to determine the price
of g/s and the amount of g/s that will be
supplied
Demand
 The AMOUNT of a product that consumers want to BUY
 Consumers must be willing and able to make the purchase in
order for there to be a demand
Law of Demand
Price
Demand
=
If the cost is down, people will buy more.
Price
Demand
=
If the cost is up, people will buy less
Human Behavior That Causes Demand
1) Substitution Effect :
As the price of a good goes up it becomes more expensive
than other goods, causing people to choose the less
expensive product
2) The Income Effect:
 When the price of goods/services goes UP we feel
POORER
 When the price of goods/services goes DOWN we feel
RICHER
 Even though you FEEL richer/poorer you real income
HAS NOT changed!
The menu for school lunch reads:
Cheeseburger = $1.50
Slice of Pizza = $1.50
(Students usually buy about 500 cheeseburgers and 500 pizzas a
day)
If the price of beef goes up then the price of Cheeseburgers will go
up too.
Then the menu will change to:
Cheeseburger = $2.50
Slice of Pizza = $1.50
(Students will then buy about 100 cheeseburgers and 900
pizzas a day.)
This change in spending = the Substitution Effect
 As the price of gas goes up it becomes more
expensive to fill our cars.



When gas was $1.00 a gallon, it cost $15 to fill my
tank.
If gas goes to $4.00 a gallon, it will cost $60 to fill my
tank.
That means I will drive fewer places in order to save
my income.
Supply
 The amount of goods/services that a producer makes
available to sell
Law of Supply
Price
Supply
=
If the cost is up, companies will make more
(because there is more money to be made)
Price
Supply
=
If the cost is down, companies will make less
So…
Supply
Demand
=
*When something is not scarce,
there is not a high demand for it
• The opposite is also true
(Low supply = HIGH demand)
Surplus - When you have more supply than demand
Shortage – When you have less supply than demand
Equilibrium – When the supply and the demand are the same
(equal)