economics: the basics. the basics.. fundamental problem facing all societies: scarcity define: the...
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Economics: The Basics
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The Basics..
• Fundamental problem facing all societies:SCARCITYDefine: The condition that results from society not having enough resources to produce all the things people would like to have
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Economics is..• The study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources• Need: basic requirement for survival•Want: a way of expressing a basic need
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3 Basic Questions of Econ
1. What to produce?• Consumer vs. Defense
Production2. How to produce?
• Less equipment, more workers?3. For whom to produce?
• Products must be allocated to someone
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Factors of Production
•Define: resources required to produce the things a society would like to have• Land: resources not human made•Capital: tools, machinery, equipment necessary to produce a good
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Factors of Production
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Factors of Production
• Labor: people with all their efforts, abilities, and skills•Entrepreneurs: a risk taker in search of profits who does something new with existing resources
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Making Decisions
• Trade Offs: An alternative that we sacrifice when we make a decision• “Guns or butter”: A phrase that refers
to the trade-offs that nations face when choosing whether to produce more of less military or consumer goods
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Guns (defense spending) or
Butter (consumer spending)
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Opportunity Cost• Opportunity Cost: the most desirable
alternative given up as a result of a decision
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OR….
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Or…
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Broad Social Goals• Economic Efficiency: refers to how well scarce productive resources are allocated to produce the goods and services people want and how well inputs are used to keep costs low• Economic Equity: “Fairness”; Distribution of income and wealth; Equal opportunity and outcomes; What people think is right and wrong
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Broad Social Goals Cont.• Economic Freedom: freedom to decide to spend or save; freedom to choose jobs; start business• Economic Growth: Increasing production of goods and services over time• Economic Security: Protecting consumers, producers, and resource owners from risks that exist in society
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Broad Social Goals (end)
• Economic Stability: Maintaining stable prices and full employment; Keep economic growth smooth and steady
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The broad social goals are reflected in..
• Command Economies: aka a planned economy; government controlled• http://www.youtube.com/watch?v=iq9sE8bjlLM
• Market Economics: naturally fluctuating economy with no government intervention
• Mixed Economies: having aspects of both command and market economies
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3 Types of Economies
• Traditional: basic economic decisions are made according to long-established patterns of behavior that are unlikely to change
• Command Economies: government or central authority owns or controls the factors of production and makes the basic economic decisions• Planned Economies
• Market economies: a system in which private individuals own the factors of production and are free to make their own choices about production, distribution and consumption
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Mixed Economy
• A mixture of the three basic economic systems
• China: Command Economy but in 80’s and 90’s began instituting more aspects of private business
• US: Market Economy aka a Free Enterprise System; Elements of government control in our economy