Unit 1 – Basic Economic Unit 1 – Basic Economic ConceptsConcepts

Chapter 1Chapter 1 Objectives: Objectives: - For students to understand the basic For students to understand the basic

economic problem.economic problem.- - For students be able to make rational - For students be able to make rational

economic choices.economic choices.- For students to be able to explain the For students to be able to explain the

factors of production. factors of production. - For students to understand the Circular For students to understand the Circular

Flow Model Flow Model

Topics to be discussedTopics to be discussed

What is EconomicsWhat is Economics Basic Economics QuestionBasic Economics Question Circular FlowCircular Flow Inflation/RecessionInflation/Recession Opportunity CostOpportunity Cost 3 Basic Questions3 Basic Questions 4 Factors of Production4 Factors of Production Micro and Macro EconomicsMicro and Macro Economics

What is EconomicsWhat is Economics – Quiz – QuizChoose the correct answerChoose the correct answer

Economics is the political science that Economics is the political science that deals with unemployment, inflation, taxes, deals with unemployment, inflation, taxes, business cycles, money, supply, and trade.business cycles, money, supply, and trade.

Economics is the social science that Economics is the social science that studies money and bankingstudies money and banking

Economics is the social science that Economics is the social science that examines the interaction of demand and examines the interaction of demand and supplysupply

Economics is the social science concerned Economics is the social science concerned with the problem of scarcitywith the problem of scarcity

And the answer is…And the answer is…

Economics is the social science Economics is the social science concerned with the problem of scarcityconcerned with the problem of scarcity

What is What is ScarcityScarcity?? Not enough resources to meet demandNot enough resources to meet demand

Why do you think scarcity is a problem?Why do you think scarcity is a problem? What else is Economics?What else is Economics?

Economics is common sense made confusing.Economics is common sense made confusing. Economics is the science of decision making.Economics is the science of decision making.

Economics?Economics?

The social science concerned with The social science concerned with how individuals and societies decide how individuals and societies decide how to satisfy there unlimited wants how to satisfy there unlimited wants given our limited resources. given our limited resources. I can’t buy a car if I don’t have an I can’t buy a car if I don’t have an

income!income! The science of decision makingThe science of decision making

How to make decisionsHow to make decisions

““The Economic Problem”The Economic Problem” ScarcityScarcity… What is it?… What is it?

Limited resources but unlimited wantsLimited resources but unlimited wants Unlimited wants VS Limited ResourcesUnlimited wants VS Limited Resources

You can’t buy 10 candy bars if the store You can’t buy 10 candy bars if the store only has 5 candy bars to sell.only has 5 candy bars to sell.

Can’t buy 3 burgers if you only have Can’t buy 3 burgers if you only have enough money for 1.enough money for 1.

What are some things that you “want” to What are some things that you “want” to have? Do you have the resources to have? Do you have the resources to purchase them?purchase them?

Needs VS WantsNeeds VS Wants What are some of your needs…wants.What are some of your needs…wants.

Scarcity means…Scarcity means…

We must use things efficiently in order We must use things efficiently in order to maximize the number of goods and to maximize the number of goods and services we can produce. services we can produce. Don’t waste…Don’t waste…

The Economic ProblemThe Economic Problem (Scarcity)– (Scarcity)– We can’t have everything we want!!We can’t have everything we want!! Because of this… we need to make Because of this… we need to make

choices. choices. What we want (need) VS what we can give up What we want (need) VS what we can give up

(live without)(live without)

How does scarcity impact you?How does scarcity impact you?

Have you ever wanted something Have you ever wanted something you couldn’t afford to buy?you couldn’t afford to buy?

Did a store ever run out of the item Did a store ever run out of the item that you wanted?that you wanted?

Has anyone ever wanted you to do Has anyone ever wanted you to do something that you didn’t have time something that you didn’t have time to do?to do?

Production Possibilities CurveProduction Possibilities Curve

Graph showing the maximum Graph showing the maximum combinations of goods and services combinations of goods and services that can be produced from a fixed that can be produced from a fixed amount or resources in a given amount or resources in a given period of time. period of time. Because resources are limited we are Because resources are limited we are

only able to use so much of them to only able to use so much of them to produce certain goods. produce certain goods.

Pg. 17 – 18 of your textPg. 17 – 18 of your text

Resources Resources – – Factors of ProductionFactors of Production

Natural resourcesNatural resources (Land)– “free gifts of nature” (Land)– “free gifts of nature” Land, minerals, oil, forests, air, and timberLand, minerals, oil, forests, air, and timber

Capital ResourcesCapital Resources – “manufactured aids to production” – “manufactured aids to production” Tools, machines, equipment, factoriesTools, machines, equipment, factories Things used in producing goods and services and getting them Things used in producing goods and services and getting them

to consumers.to consumers. Human ResourcesHuman Resources (Labor)– “mankind’s physical and (Labor)– “mankind’s physical and

mental talent”mental talent” These are the skills people have that are used to produce These are the skills people have that are used to produce

goods and services. goods and services. EntrepreneurEntrepreneur – the individual who combines the factors – the individual who combines the factors

of production in order to produce a good or service.of production in order to produce a good or service. Risk taker, policy maker, and innovatorRisk taker, policy maker, and innovator

Would it be possible to start a Would it be possible to start a business without one of these business without one of these

factors?factors? If you would create any type of If you would create any type of

business you wanted what would it business you wanted what would it be and what would you need to get be and what would you need to get started?started?

Opportunity CostOpportunity Cost

The true cost of choosing one alternative The true cost of choosing one alternative over the other. over the other. Trade offs Trade offs – giving up one thing in order to – giving up one thing in order to

obtain another. obtain another. The one that you give up when the The one that you give up when the

choice is made.choice is made. Give an example of a time when you had to Give an example of a time when you had to

make an economic choice. What was the make an economic choice. What was the opportunity cost?opportunity cost?

““Opportunity cost is the opportunity lost”Opportunity cost is the opportunity lost”

College Vs. Work College Vs. Work What are you planning on doing after What are you planning on doing after

you finish high school?you finish high school? College or workCollege or work

What factors did you consider when What factors did you consider when making this decision?making this decision? money now or money latermoney now or money later FamilyFamily

How will this decision impact your How will this decision impact your future?future?

What are the trade offs of this What are the trade offs of this decision? Opportunity cost?decision? Opportunity cost?

RecapRecap

What is the basic economic problem?What is the basic economic problem? As consumers what do we need to As consumers what do we need to

weigh when making economic weigh when making economic choices?choices?

What are the four factors of What are the four factors of production?production?

What is economics?What is economics? How do trade offs lead to opportunity How do trade offs lead to opportunity

costs?costs?

Let’s keep on moving…Let’s keep on moving…

““Economics is common sense made Economics is common sense made confusing,” so if you are confused confusing,” so if you are confused

you are likely not alone!!you are likely not alone!!

If you have any questions on the If you have any questions on the material that we just covered please material that we just covered please stop me here and we will review a bit stop me here and we will review a bit on what you are having a tough time on what you are having a tough time

with.with.

Types of EconomicsTypes of Economics Macroeconomics – Macroeconomics – branch of economics that branch of economics that

deals with economic theory and the deals with economic theory and the economic decisions of large bodies like the economic decisions of large bodies like the government.government. Theories of EconomicsTheories of Economics Countries and their governmentsCountries and their governments Trade between countriesTrade between countries

Microeconomics – Microeconomics – branch of economics that branch of economics that deals with behavior and decisions of smaller deals with behavior and decisions of smaller unit like individuals and businesses.unit like individuals and businesses. Families, businesses, and communitiesFamilies, businesses, and communities Domestic economiesDomestic economies

Circular flow of income and Circular flow of income and outputoutput

What does the circular flow model What does the circular flow model show us?show us?

Why is a relationship between the Why is a relationship between the factor market and the product factor market and the product market necessary for the economy to market necessary for the economy to stay strong?stay strong?

Business CycleBusiness Cycle

Parts of the Business CycleParts of the Business Cycle

Peak (boom)– Peak (boom)– Highest point in the Highest point in the economic cycle.economic cycle. Economy is at its best and will likely Economy is at its best and will likely

begin to contract.begin to contract. Recession (contraction)– Recession (contraction)– decline in decline in

the economies performance that the economies performance that could lead to depression.could lead to depression. Not long term and does not always Not long term and does not always

impact other economiesimpact other economies

Trough (depression)– Trough (depression)– A sustained A sustained economic downturn that impacts our economic downturn that impacts our economy and that of other countries. economy and that of other countries. Lowest economic pointLowest economic point

Recovery (expansion)- Recovery (expansion)- Economic Economic activity begins to pick up and activity begins to pick up and depression begins to end. depression begins to end. Economic growth occursEconomic growth occurs

History of the U.S. EconomyHistory of the U.S. Economy

Look up the economic patterns of the Look up the economic patterns of the United States from the 1800’s until United States from the 1800’s until now and map out the various points now and map out the various points on the business cycle to what was on the business cycle to what was happening in the United States. happening in the United States.

3 Basic Economic Questions3 Basic Economic Questions

What to produce?What to produce? With limited resources, deciding what is With limited resources, deciding what is

needed the most is often a factor in needed the most is often a factor in determining what will be produced. determining what will be produced. What is the need or want of this What is the need or want of this product?product?

What is the point of making a product What is the point of making a product that no one is going to buy. Businesses that no one is going to buy. Businesses need to make money…so they choose need to make money…so they choose products that people want. products that people want.

3 Basic Questions Cont…3 Basic Questions Cont…

How should it be produced?How should it be produced? Technology, labor, capital, ect. Technology, labor, capital, ect. getting the lowest cost to make the getting the lowest cost to make the

product.product. Are we going to make the product from Are we going to make the product from

scratch or will a machine be making the scratch or will a machine be making the product. product.

What will each option cost?What will each option cost? Will having new technology allow us to Will having new technology allow us to

lower our expenses?lower our expenses?

3 Basic Questions Cont…3 Basic Questions Cont…

Whom should it be produced for?Whom should it be produced for? Who is going to use this product?Who is going to use this product?

Did Apple market the ipod to the large Did Apple market the ipod to the large population of elderly people in the U.S. or the population of elderly people in the U.S. or the youth? Why?youth? Why?

Most goods and services are distributed to Most goods and services are distributed to individuals through a price system. individuals through a price system.

If you want it and can afford to buy it…you will.If you want it and can afford to buy it…you will. Products can also be distributed through Products can also be distributed through

other means; force, first come, lottery, other means; force, first come, lottery, majority, ect.majority, ect.

RecapRecap

What are the three basic economic What are the three basic economic questions?questions?

Compare and contrast micro and Compare and contrast micro and macro economics. macro economics.

Explain the circular flow of income Explain the circular flow of income and output as it relates to the and output as it relates to the economy.economy.

Describe the business cycle.Describe the business cycle.

InflationInflation

The rate at which the general level of The rate at which the general level of prices for goods and services is prices for goods and services is rising, and, subsequently, purchasing rising, and, subsequently, purchasing power is falling.power is falling. As inflation rises, every dollar will buy a As inflation rises, every dollar will buy a

smaller percentage of a good. For smaller percentage of a good. For example, if the inflation rate is 2%, then example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a a $1 pack of gum will cost $1.02 in a year.year.

RecessionRecession A significant decline in activity across the A significant decline in activity across the

economy, lasting longer than a few economy, lasting longer than a few months. months. It is visible in industrial production, It is visible in industrial production,

employment, real income and wholesale-retail employment, real income and wholesale-retail trade. The technical indicator of a recession is trade. The technical indicator of a recession is two consecutive quarters of negative economic two consecutive quarters of negative economic growth as measured by a country's gross growth as measured by a country's gross domestic product (GDP).domestic product (GDP).

A recession generally lasts from six to 18 A recession generally lasts from six to 18 months, and months, and interest rates usually fall in during usually fall in during these months to stimulate the economy by these months to stimulate the economy by offering cheap rates at which to borrow money.offering cheap rates at which to borrow money.

Recession is a normal (albeit unpleasant) part Recession is a normal (albeit unpleasant) part of the business cycle; however, one-time crisis of the business cycle; however, one-time crisis events can often trigger the onset of a events can often trigger the onset of a recession. The global recession of 2008-2009 recession. The global recession of 2008-2009 brought a great amount of attention to the brought a great amount of attention to the risky investment strategies used by many risky investment strategies used by many large large financial institutions, along with the truly institutions, along with the truly global nature of the financial sytem. As a result global nature of the financial sytem. As a result of such a wide-spread global recession, the of such a wide-spread global recession, the economies of virtually all the world's economies of virtually all the world's developed and developing nations suffered developed and developing nations suffered extreme set-backs and numerous government extreme set-backs and numerous government policies were implemented to help prevent a policies were implemented to help prevent a similar future financial crisissimilar future financial crisis

What is the connection between What is the connection between Inflation and Recession?Inflation and Recession?

Which came first the chicken or the recession?Which came first the chicken or the recession? In many cases the causes of recession can be In many cases the causes of recession can be

confusing. Can inflation cause/worsen a confusing. Can inflation cause/worsen a recession? Or does a recession cause/worsen recession? Or does a recession cause/worsen inflation?inflation?

Both…a recession does not always have a single cause, Both…a recession does not always have a single cause, but can be caused by many factors. Once a recession but can be caused by many factors. Once a recession begins, it’s impact is usually felt all over the economy, begins, it’s impact is usually felt all over the economy, including inflation. Inflation occurs without a recession, including inflation. Inflation occurs without a recession, but a dramatic change in the value of money can push but a dramatic change in the value of money can push an unstable economy into a recession.an unstable economy into a recession.

Look at the causes or influences Look at the causes or influences of our most recent recessionof our most recent recession

Poor business practices – started the Poor business practices – started the recessionrecession It was likely on its way alreadyIt was likely on its way already

InflationInflation Decline in the stock marketDecline in the stock market Increased foreclosures/ drop in Increased foreclosures/ drop in

housing priceshousing prices

In Short…In Short…

Economics is common sense made Economics is common sense made confusingconfusing

We can’t have everything that we want, so we have to We can’t have everything that we want, so we have to make choices with our money.make choices with our money.

Businesses have to make choices with their products.Businesses have to make choices with their products. Society has to make choices about how it should or will Society has to make choices about how it should or will

function.function. The Government makes choices about laws and expenses.The Government makes choices about laws and expenses. Just to name a few!!!Just to name a few!!!

Chapter ReviewChapter Review

What is the basic Economic question?What is the basic Economic question? What does a production possibilities curve What does a production possibilities curve

show us?show us? What are the four factors of production?What are the four factors of production? What are trade offs and opportunity costs?What are trade offs and opportunity costs? What are the three basic economic questions?What are the three basic economic questions? Define microeconomics and macroeconomics.Define microeconomics and macroeconomics. What are inflation and recession?What are inflation and recession? How does the circular flow of income and How does the circular flow of income and

output impact the economy?output impact the economy?