chapter 18 what is economics?
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Chapter 18 What is Economics?. Section 1- The Fundamental Economic Problem. Economics – the study of how we make decisions in a world where resources are limited. - PowerPoint PPT PresentationTRANSCRIPT
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Chapter 18 What is Economics?
Section 1- The Fundamental Economic Problem
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Economics –
the study of how we make decisions in a world where resources are limited
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Scarcity –
the fundamental economic problem;
we have unlimited wants, but a limited amount of resources
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Scarcity
we must make decisions about how to balance our needs (food, clothing,
shelter, etc.) with our wants
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Needs• Goods and services
that are necessary for survival.
• Food• Water• Shelter
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Wants• Goods and services
that are not necessary but that we desire or wish for.
• Gaming system• Larger house• Designer jeans
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With our resources, we can buy Goods or• Some thing that you
can use or consume.
Services• Something that
someone does for you.
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The 3 Basic Economic Questions
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(1) Society must decide what to produce with its limited resources
Which goods and services will be produced?
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(2) Society must decide how to produce.
What methods should we use?
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(3) Society must decide for whom to produce.
Who will receive the goods and services?
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The Guns vs. Butter Dilemma• In times of scarce resources
(recessions), governments must make choices about whether to spend money on defense (guns) or the needs of regular Americans (butter).
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Using Economic Models
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Economic Models –
simplified representations of the real world based on economic theories;
used by economists to study a part of the economy
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Economists use models to better understand the past or present and to
predict the future
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Businesses and government often base their decisions on the results of
economic models
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Chapter 18 What is Economics?
Section 2 Making Economic Decisions
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Making Economic Decisions• Scarcity forces people to make choices
about how they will use their resources
• Must take into account all costs and benefits
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Trade off• alternative you face if you decide to
do one thing rather than another
• Examples: • 1.buying a candy bar or buying a drink
• 2. studying for a test or talking on the phone with friends
OR
OR
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Opportunity Cost• Cost of the next best use of your time/$ if
you chose to do one thing rather than another– Includes discomforts and inconveniences
• Examples: going to college or going to work
college work
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Measures of cost• Fixed costs
–Expenses that are the same no matter how many units are produced
–Examples: mortgage, car payments, rent
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Measures of Cost• Variable costs
–Expenses that change with the number of products produced
–Examples: electric bill, water bill, grocery shopping
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Measures of Cost• Total costs
–Add fixed costs and variable costs
–Businesses look at average total costs (divide total cost by quantity produced)Fixed
costs+Variable costs = TOTAL
COSTS
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Measures of Cost• Marginal cost
–Extra/additional cost of producing one additional unit of output
• Example: if it costs $20 to make 5 cd’s and $24 to make 6 cd, how much is the marginal cost of producing the 6th cd?
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Marginal benefit• Additional/extra benefit associated
with an action
• We do things because we expect to receive a benefit
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Cost-benefit analysis• Comparing the marginal costs and
marginal benefits of a decision