WHAT IS ECONOMICS?Chapter 1

SECTION 1 ACTIVITY

The basic problem in economics….is what? How is the economy reported in the news? How does this affect your life?

Did you know? Pg. 5 predictions…

Based on this…what do you think economics

is?

WHAT IS ECONOMICS?

Economics: the study of how individuals and nations make choices about how to use scarce resources to fulfill their wants.

WHAT IS ECONOMICS?

Resource: anything that people can use to make or obtain what they want.

ACTIVITY:

1. Make a list of all the things you NEED in a week.2. Make a list of all the things you WANT in a week.3. You have $100 to live on for a week: make a

list of items you would buy. Approximate prices and add them together. Eliminate items if you went over $100.

Why did you make the choice to keep or eliminate each item?

WHAT IS SCARCITY?

Scarcity: means that people do not and cannot have enough income, time, or other resources to satisfy their every desire.

WHAT IS SCARCITY: DETAILS?

Not the same as shortage, which is temporary and often exists after disasters where goods and property are destroyed. Example: Gas Prices change when conditions

change providing access to the resource Scarcity always exists. There are limited

amounts of money, time, resources, etc.

WHAT IS SCARCITY: DETAILS?

Business’ application – affects decisions about what to produce now, later, and when to stop production. Therefore, affects peoples income and buying power.

Nations’ application – how to spend scarce resources. Example: social security vs. higher

education

WHAT WOULD LIFE BE LIKE WITHOUT SCARCITY?

NEEDS: DEFINATE:

Food, clothing, shelter

POSSIBLE: education, job, healthcare

WANTS: Anything else

other than basic needs

WANT = LUXURY Can be a

perceived need

TYPES OF RESOURCES: TERMS Land: natural

resources – i.e.: land, things found in nature, location of land (determines value)

Labor: work people do – human resources – anyone who works provides this resource

Capital: all the property people use to make other goods and services – i.e. machines used to make autos NOT the autos, UNLESS they

are used as a business i.e. taxi or log trucks, delivery trucks, etc.

Combining capital with land or labor increases the value of all resources by increasing their PRODUCTIVITY: ability to produce greater quantities of goods and services in better & faster ways.

TYPES OF RESOURCES: TERMS

Entrepreneurship: refers to the ability of individuals to start new businesses, to introduce new products and techniques, and to improve management techniques

Requires initiative and individual willingness to take RISKS.

TYPES OF RESOURCES: TERMS Factors of

Production: together, the resources of land, labor, capital, and entrepreneurship Are used to produce

goods and services.

Goods: items that people buy

Services: activities done for other for a fee

Technology: use of science to develop new products and new methods for producing and distributing goods and services. Increases productivity!!!

WHAT IS SCARCITY: TRADE-OFFS

SCARCITY– Forces choices! i.e. Education vs. buy a house

What is the resource that is scarce? LONG TERM VS. SHORT TERM GOALS: Choices

change with maturity and life conditions

TRADE-OFF – exchanging one thing for the use of another i.e. exchange $ for the right to own an iPod Why are these choice to “trade” made?

THE COST OF CHOICES

When you choose one thing you give up another ALWAYS!

i.e. time is a scarce resource. When you choose to spend your time watching T.V. you are giving up that chunk of time for any other

purpose (studying, exercising, etc.)

Is life a series of trade-offs? How and why???

OPPORTUNITY COSTDEFINITION: the value of the next best

alternative that had to be given up for the alternative chosen

i.e. national level – tax $: space program or clean polluted river?

Making choices that are unavoidable because of the problem of scarcity.

i.e. auto pollution vs. increased car manufacturing costs – a choice has to be made.

PRODUCTION POSSIBILITIESDEFINITION: all the combinations of

goods and services that can be produced from a FIXED AMOUNT OF RESOURCES in a GIVEN PERIOD OF TIME

i.e. Guns vs. Butter!! (military spending vs. civilian goods)

** To produce one $ is given up to produce the other. How do you BEST decide what to produce?

WHAT DO ECONOMISTS DO? Economy: All the activity in a nation

that together affects the production, distribution, and use of goods and services

Economists: gather data to develop theories that are then used to make decisions by businesses or government agencies

ECONOMIC MODEL Economic models show the way people react to

changes in the economy, usually changes in PRICES!

Three ways to present models:1. Explanation in words2. A graph3. A mathematical equation

Limits1. A lack of detail2. Infinite possibilities (things you cannot account for)3. Shows only basic factors:

i.e. only need to know 3 basic factors to determine buyers reaction to price change: 1) price of item, 2) income of average buyer, 3) price of alternative items

PURPOSE OF ECONOMIC MODELS They only take into account the most important

factors, not ALL of them.1. Creating: a model is considered “good” if it provides

useful materials for analyzing the way the real world works through RESEARCHa) Form a hypothesis (idea about the way things

should work; educated guess)b) Gather factsc) Draw conclusions

2. Testing: gather and compare data3. Applying: predicting human behavior – IS THIS

POSSIBLE?1. i.e. cut taxes, increase government spending =

people spend more $ = increase of total production 2. Alternative view: view that if taxes are decreased,

people may save and therefore no increase in spending.

SCHOOLS OF ECONOMIC THOUGHTINFLUENCES THROUGH FACTS, BELIEFS, GOVERNMENT, AND SOCIETY

1980s – emphasis on business and consumers; reducing unemployment “Reaganomics”

1990s – government intervening to reduce unemployment

Each government era has its own school of thought!

What goes into a government developing its school of thought?

SCHOOLS OF ECONOMIC THOUGHTINFLUENCES THROUGH FACTS, BELIEFS, GOVERNMENT, AND SOCIETY

Values: the beliefs or characteristics that a group or person considers important

Having the same values does not mean that people will agree about solutions!

How would you describe our current government’s school of thought?

What facts do you have to support your hypothesis?