EconomicEconomicss

““The Basics of The Basics of Economics”Economics”

Part I:Part I:The Basic Terms of The Basic Terms of

EconomicsEconomics

People in EconomicsPeople in Economics► In any society, there In any society, there

are two major players are two major players in economics.in economics.

producer – maker producer – maker and/or seller of goods and/or seller of goods and servicesand services

consumer – buyer consumer – buyer and/or user of goods and/or user of goods and services and services (everyone is a (everyone is a consumer)consumer)

Needs vs. WantsNeeds vs. Wants

►needs – something humans needs – something humans require for survival (food, require for survival (food, water, clothing, shelter)water, clothing, shelter)

►wants – something desired, wants – something desired, beyond what is required for beyond what is required for survival (IPOD, cell phone)survival (IPOD, cell phone)

Goods vs. ServicesGoods vs. Services

►good – any manufactured good – any manufactured

productproduct ex. food, shoes, or TVsex. food, shoes, or TVs

►service – work done for othersservice – work done for others ex. police, restaurants, ex. police, restaurants,

doctors, beauticians, doctors, beauticians, teachersteachers

ScarcityScarcity

►a shortage of goods or servicesa shortage of goods or services In any society, there is never enough In any society, there is never enough

of everything to satisfy everyone’s of everything to satisfy everyone’s wants and needs.wants and needs.

Unlimited wants and limited resources Unlimited wants and limited resources force choices.force choices.

Individuals, businesses, and Individuals, businesses, and governments all make choices due to governments all make choices due to scarcity.scarcity.

Scarcity in Developed Scarcity in Developed NationsNations

►insufficient domestic insufficient domestic petroleumpetroleum

►lack of raw lack of raw materialsmaterials

►unfavorable balance unfavorable balance of trade (more of trade (more imports than imports than exports)exports)

Scarcity in Scarcity in Underdeveloped NationsUnderdeveloped Nations

►not enough farmland, water, and foodnot enough farmland, water, and food► lack of medical personnel, supplies, lack of medical personnel, supplies,

and facilitiesand facilities► lack of transportation for goodslack of transportation for goods► lack of building materialslack of building materials► lack of employment lack of employment ► lack of capital for investmentlack of capital for investment► lack of educationlack of education

Allocation of ResourcesAllocation of Resources► deciding who gets what resource deciding who gets what resource

because people’s wants exceed the because people’s wants exceed the available resource resulting in available resource resulting in scarcityscarcity

► opportunity cost – opportunity cost –

something that is given something that is given

up when something else up when something else

is chosenis chosen

Economic DecisionsEconomic Decisions

►Producers in an economy must make Producers in an economy must make basic economic decisions.basic economic decisions. What to produce?What to produce? How to produce?How to produce? For whom to produce?For whom to produce?

Law of Supply and Law of Supply and DemandDemand

► supply – the amount of a good or service supply – the amount of a good or service available for sale in a marketavailable for sale in a market

► demand – the amount of a good or service demand – the amount of a good or service wanted in a marketwanted in a market

► When supply is up and demand is down, When supply is up and demand is down,

prices go down.prices go down.► When supply is down When supply is down

and demand is up, and demand is up,

prices go up.prices go up.

Part IIPart IIResources: The Resources: The

Factors of ProductionFactors of Production

Productive ResourcesProductive Resources►availability of these availability of these

impacts the economic impacts the economic decisionsdecisions

►four major categories: four major categories: natural natural humanhuman capital (goods and capital (goods and

human)human) entrepreneurshipentrepreneurship

Natural ResourcesNatural Resources

► includes the sun, includes the sun, wind, water, wind, water, oceans, rivers, oceans, rivers, gifts of nature, gifts of nature, and mineral and mineral resources resources available in an available in an areaarea

Human ResourcesHuman Resources

► laborlabor people with people with

talent, talent, knowledge, and knowledge, and skillsskills

Capital GoodsCapital Goods

► Capital goods are the Capital goods are the tools.tools. These are things that These are things that

have been produced have been produced by past efforts of by past efforts of people that are used people that are used in production of goods in production of goods and services.and services.

Examples include: Examples include: tools, equipment, tools, equipment, buildings, machinery, buildings, machinery, and factories.and factories.

► This is not money!This is not money! Money is NOT a Money is NOT a

resource; money is resource; money is a means or medium a means or medium of exchange.of exchange.

Money is not worth Money is not worth anything by itself. anything by itself. Its value is for what Its value is for what we can exchange we can exchange the money.the money.

Human CapitalHuman Capital

► Investing in human capital involves Investing in human capital involves training & education.training & education.

► If you improve people skills, then they will If you improve people skills, then they will be more productive.be more productive.

► People with more education will earn more.People with more education will earn more.► Teachers are investing in human capital.Teachers are investing in human capital.

EntrepreneurshipEntrepreneurship► ability and ability and

willingness to willingness to see an see an opportunity to opportunity to make a profit make a profit by making by making and selling and selling a good a good or service or service - the - the willing- willing- ness to risk ness to risk capitalcapital

► entrepreneur – person who entrepreneur – person who risks capital to produce a risks capital to produce a good or servicegood or service

► investor – person who investor – person who provides capital to an provides capital to an entrepreneur entrepreneur

► middleman – a trader who middleman – a trader who buys goods from the buys goods from the producer and, in turn, sells producer and, in turn, sells the goods to another seller the goods to another seller or sells directly to the or sells directly to the consumer for profit (involves consumer for profit (involves mark up in price to mark up in price to consumer at each exchange)consumer at each exchange)

Opportunity RecognitionOpportunity Recognition

►Entrepreneurs must recognize an Entrepreneurs must recognize an unmet demand in the economy and try unmet demand in the economy and try to meet it.to meet it.

►This involves risk taking.This involves risk taking. China – people grow rice in flooded fields, China – people grow rice in flooded fields,

in which they also raise fish to sellin which they also raise fish to sell Truett Cathy - Chick-fil-aTruett Cathy - Chick-fil-a

TechnologyTechnology

►Advancements in Advancements in technology have technology have led to higher led to higher productivity and productivity and a higher a higher standard of standard of living.living.

Examples of TechnologyExamples of Technology

►the wheelthe wheel►irrigationirrigation►hydroelectric powerhydroelectric power►automobilesautomobiles►telephonestelephones►computerscomputers

EconomicsEconomics

W hat we doType of Job

W here we live

Personal

Econom ic SystemHow to allocate resources

Governem ent SystemSpend Tax dollars

Societal

Decision Making

Scarcity

W ants > Resources

PERSONAL FINANCEPERSONAL FINANCE

►Financial planning for individuals. Financial planning for individuals. Generally, it involves analyzing their Generally, it involves analyzing their current financial position, predicting current financial position, predicting short-term and long-term needs, and short-term and long-term needs, and recommending a financial strategy. recommending a financial strategy. The financial strategy involves setting The financial strategy involves setting a budget and planning for future a budget and planning for future needs and wants. needs and wants.

INCOMEINCOME

► The monetary payment received for good or The monetary payment received for good or services, or from other sources, as rents or services, or from other sources, as rents or investments. investments.

► Income is money that literally “comes in” on a Income is money that literally “comes in” on a regular basis. For most people, income is something regular basis. For most people, income is something that comes from getting paid for doing work. Some that comes from getting paid for doing work. Some people, however, are able to live off from their people, however, are able to live off from their savings or investments. Income may also come savings or investments. Income may also come from gifts or from selling something. from gifts or from selling something.

SpendingSpending

► to pay out, disburse, or to pay out, disburse, or expend; dispose of (money, expend; dispose of (money, wealth, resources, etc.):wealth, resources, etc.):

► Money is needed for food, Money is needed for food, shelter, and clothing. Of shelter, and clothing. Of course, people spend money course, people spend money on things they want, too. on things they want, too.

► Things that we want but do Things that we want but do not need are called luxuries. not need are called luxuries.

► The best way to spend money The best way to spend money wisely is to make a wisely is to make a BUDGETBUDGET, , which is a plan for how much which is a plan for how much money will be spent on each money will be spent on each type of item that person must type of item that person must buy. buy.

SAVINGSSAVINGS

► 1 Goal of 1 Goal of BUDGETINGBUDGETING is to save money. is to save money. ► Saving allows people to plan to buy some expensive in Saving allows people to plan to buy some expensive in

the future. the future. ► Many different ways to save money. EX. Piggy bank, not Many different ways to save money. EX. Piggy bank, not

necessarily safe. necessarily safe. ► Best way of saving money is to put it in bank. Best way of saving money is to put it in bank. ► By saving in a bank, your money can earn interest. By saving in a bank, your money can earn interest.

Interest is a charge that the bank pays you to use your Interest is a charge that the bank pays you to use your money. money.

CREDITCREDIT► When savings and income are not enough to pay for what a When savings and income are not enough to pay for what a

person wants or needs, he or she can use credit. person wants or needs, he or she can use credit. ► Credit is money that you borrow from a bank. Credit is money that you borrow from a bank. ► When you let the bank use your money, that bank pays you When you let the bank use your money, that bank pays you

interest. interest. ► When you use the bank’s money, you then must pay the bank When you use the bank’s money, you then must pay the bank

interest interest ► There are many different types of There are many different types of CREDIT, CREDIT, credit cards, home credit cards, home

loans, and car loans. loans, and car loans. ► Anytime money is owed, credit is extended. Anytime money is owed, credit is extended. ► The key to personal finance is never to borrow more than you The key to personal finance is never to borrow more than you

can pay off in a reasonable amount of time. can pay off in a reasonable amount of time.

InvestmentInvestment

► the investing of money or the investing of money or capital in order to gain capital in order to gain profitable returns, as profitable returns, as interest, income, or interest, income, or appreciation in value. appreciation in value.

► Investing is spending Investing is spending money in the hope of money in the hope of earning more money than earning more money than is spent.is spent.

► EX. Collectable trading EX. Collectable trading cards. A card that is cards. A card that is bought for a $1 may bought for a $1 may someday be worth $10. A someday be worth $10. A return of $9- which is 900%return of $9- which is 900%

INVESTMENTINVESTMENT► the investing of money or capital in order to gain profitable the investing of money or capital in order to gain profitable

returns, as interest, income, or appreciation in value. returns, as interest, income, or appreciation in value. ► Investing is spending money in the hope of earning more Investing is spending money in the hope of earning more

money than is spent.money than is spent.► EX. Collectable trading cards. A card that is bought for a $1 EX. Collectable trading cards. A card that is bought for a $1

may someday be worth $10. A return of $9- which is 900%may someday be worth $10. A return of $9- which is 900%► EX. Honus Wagoner card in 1909 cost less than .50 cents this EX. Honus Wagoner card in 1909 cost less than .50 cents this

year it sold for 2.35 million dollars. year it sold for 2.35 million dollars.