• Chapter 1 What is economics?
Chapter 1
• Economics – study of the choices that
consumers and producers make.
• Capitalism – United States Economic System.
Laissez Faire – Free Enterprise – Private
Property• Adam Smith – the “Wealth of Nations”
Scarcity
• The Fundamental
Economic Problem
• Unlimited needs and
wants with limited
resources = scarcity
which leads to choices
for producers.
4 factors of Production
•
•
•
•
Human Resources
Capital Resources
Natural Resources
Entrepreneurship
Goods and Services
• Goods—tangible
items
• Services—not
physical
• *both require scarce
resources to produce
and satisfy human
wants
Assignment
1. Define the following terms:
Scarcity
Productive resources
Economics
Human resources
Labor
Entrepreneur
Natural resources
Capital goods
Good
Services
• 2. Go to page 9, 1.1
Assessment, answer
• 1,4, and 6
• What to Produce?
• How to Produce?
• For whom to Produce for?
Trade Offs and Opportunity Costs
• Alternatives –giving
up one thing for the
use of another
• The next best
alternative
• Example – what value
does a person lose if
they decide to do one
thing versus the other
The Production Possibilities Frontier
- PPC
tanks
sailboats
PPC continued …
•
•
•
•
Trade offs and opportunity costs
The costs of idle resources?
Economic growth
As a entrepreneur – you must decide which
product is in more demand and concentrate
your production efforts on the item in more
demand by the public.
Forms of exchange
• Barter - trade – ancient
societies
• Money – measure of
value
• Credit – borrowed
money
Journal 2
• Is it likely you will become successful or even
rich? Is this important to you?
• What choices for your future might you make
differently if you thought you had little chance
of success?
• How might you and the economy as a whole
suffer as a result of your pessimism?
Chapter 2
2.1, 2.3
Economic Systems
Types of Economic studies
Microeconomics
• Focuses on yours and others
economic behaviors
• Focuses on the factors that
influence individual
economic choices
• i.e., the smaller picture
• the individual pieces of the
economic puzzle
Macroeconomics
• Focuses on the
performance of the
economy as a whole,
especially the national
economy.
• Fits all the pieces together
looks at the big picture
Types of Economies
Types of Economies
1. Traditional Economies
• Based on custom and
tradition
• Products produced and
distributed among the
groups
• Only items that are
necessary are produced
• Rarely used today
Command Economy
• Government officials
make decisions
• Planned economies
• Ancient system – not
seen today
Market Economies
• Individuals hold control
and answer the three
basic economic
questions
• Self-interest
• System is set up to
reward people –
incentives exist
Mixed Economies
• Authoritarian / Communism
– government controls all
factors of production
• Example – U.S.S.R.
• Capitalism – government
involvement is limited
• Example – U.S.A.
• Democratic Socialism –
government ownership
is limited to key
industries
• Example - Canada
Five features of the U.S. Free
Enterprise System
• Free enterprise – an economic system in which
business can be conducted freely with limited gov.
involvement.
• Private property – people have the right to own
private property and enter into contracts.
• Engage in economic competition!
• Make decisions based on self-interest!
• Participate in the economy with limited government
involvement!
Quiz 1
• 1. What are the three economic questions?
• 2. _______ focuses on the performances of the economy
as a whole.
• 3. _______ looks at the smaller pieces of the economy.
• 4. _________ an economic system in which business can
be conducted freely with limited gov. involvement.
• 5. _________ the fundamental economic problem.
• 6. _________ the study of choices consumers and
produces make.
• 7.__________ the American economic system.
• 8. _________ economic belief that the government
should leave the economy alone.
• 9. __________ political party that believes in the above.
• 10. _________wrote “Wealth of Nations”
Circular Flow Model
Types of exchanges :
Households and Government
-households provide resources to the
government for income
-households pay taxes to the government for
services
Households and Businesses
-households provide resources to businesses
for income
-households pay businesses for products
Circular Flow Model Cont.
• Businesses and Government
– -businesses provide products to the government
for money
– -businesses pay taxes to the government for
service
Key terms :
• Utility - usefulness of a product - The utility
of a certain good can vary from person to
person.
• Self – sufficiency – when you can fulfill all your
needs with no outside influence
• Interdependence – when one area or region is
affected because of the events and incidences
that occurred in another region.
Key Terms cont.
• Productivity – level of output that results from
a given level of input
• Efficiency – the use of the smallest amount of
resources to produce the greatest amount of
output
• Division of labor – assigning a small number of
tasks to each worker
• Specialization – the focus on one activity
2.1
Comparative Advantage
Absolute Advantage v. Law of comparative
advantage
• Absolute advantage
– Being able to do something
using fewer resources than
other producers require.
– No need to cooperate
Not the best guide for
deciding what to do.
• Law of Comparative
Advantage
– The worker with the lower
opportunity cost of
producing a particular
output should specialize in
that output
Specialization
Occurs when individual
workers focus on single
tasks, enabling each one to
be more efficient and
productive
Specialization
• Absolute advantage
focuses on which of you
uses the fewest resources
• Comparative advantage
focuses on what else
those resources could
have produced
– That is, the opportunity
cost of those resources
– Indicates who should do
what (specialize)
Specialization
• Resources are allocated
most efficiently across
the country and around
the world when
production and trade
conform to the law of
comparative advantage
Specialization
• Specialization
• Based on comparative
advantage
• Did you make anything
that are wearing?
• Cotton Shirt
• Farmer grows cotton,
someone spun cotton
to thread, someone
wove thread into fabric,
• Sewed fabric to shirt,
store sold it
Division of Labor
• Division of labor
• Each worker specializes in a
separate task
• Allows the group to
produce much more
• 1. task assigned to ability
and preference
• 2. repetitive tasks makes
perfection
• 3. allows for new labor
saving techniques
Homework Assignment
• Chapter 1 and 2 Review economic terms
• Write the word and definitions down
• P. 29 and 57