What is Economics?1. What is Economics?2. Economic Systems and

Economic Tools3. U.S. Private and Public

Sectors

Discussion Question

•Open to page 5, read “In the News: Rich or Poor, It’s Good To Have Money.”

•In no less than a paragraph, answer “Think About It” in complete sentences.

•Be ready to share your answer.

Why are you

not able to

own these

items?

What is Economics?

1.1 The Economic Problem

Objectives:•Recognize the economic problem, and

explain why it makes choice necessary.•Identify productive resources, and list

examples.•Define goods and services, list examples,

and explain why they are scarce.

Economic Choices

•The Economic Problem▫Wants are unlimited▫Resources are scarce

•Scarcity – not enough productive resources available to help satisfy these wants

•Productive Resources – (factors of production) inputs used to produce goods and services.

Economics Defined

•Economics – examines how people use their scarce resources to satisfy their unlimited wants

•Imagine you received $50. What would you spend it on?▫It all boils down to choices.

Productive Resources

•Three categories:1. Human Resources

Human efforts (physical/mental) use to produce goods and services

Labor Entrepreneur – profit-seeker who develops

a new product or process and assumes the risk of profit or loss

Productive Resources Continued

2. Natural Resources Renewable resources – timber, animals, etc. Exhaustible resources – minerals, oil, water,

etc. Finite, non-renewable

3. Capital Resources All human creations used to produce goods

and services Factories, machines, trucks, tools, building,

airports, highways, etc.

Goods and Services

•Good – an item you can see, feel, and touch and that requires scarce resources to produce and satisfies human wants▫Examples?

•Services – Something not physical that requires scare resources to produce and satisfies human wants▫Examples?

Homework – Due Tomorrow• Read section p. 4-9 and

complete 1.1 worksheet.• Vocabulary:

▫ Scarcity▫ Productive resources▫ Services▫ Natural resources▫ Economics▫ Human Resources (labor)▫ Capital Goods▫ Entrepreneur

Discussion Question

You have an important test coming up. When do you study? Where do you study? Do you study alone, with a partner, or in a group? Do you do anything else while you’re studying, such as listen to music?

Listen to other student’s answers, and explain why there are so many different studying techniques.

What is Economics?

•1.2 Economic Theory

•Objectives:▫Explain the goal of economic theory.▫Understand the role of marginal analysis in

making economic choices.▫Explain how market participants interact.

The Role of Theory

•Economic Theory – simplification of economic reality used to make predictions about the real world.

•Doesn’t consider every detail•Assumes that all other things remain

constant (ceterus paribus)•Assumes people act in their own rational

self-interest

Marginal Analysis

•Marginal – “one more;”change in an economic variable by one▫How economics measure one’s economic

decisions▫Ex. Cookies for $.25 each▫If the marginal benefit outweighs the

marginal cost, one will make the change

Market Economics and National Economics•Market Economics – microeconomics;

study of economic behavior in a particular market

•National Economics – macroeconomics; study of the economic behavior of the economy as a whole

Market Participants

•Households▫Act as consumers and demand goods and

services▫Are resource owners and supply

resources (labor) to produce goods and services

•Firms, governments, and the rest of the world demand those resources, and use them to supply the goods and services households demand.

Markets

•Markets – means by which buyers and sellers carry out exchanges▫Ex. Malls, flea markets, internet, stock

market, garage sales, etc.

Circular Flow Model• Illustrates the flow of

resources, products, income and revenue among economic decision-makers

• Circular Flow Model Demonstration

• p. 16

Resource

Markets

Household

s

Product Market

s

Firms

Homework

•Read p. 10-17 and complete 1.2 worksheet

•Due tomorrow

Discussion Question

•Write a brief description of how you spent your times yesterday evening. Then describe alternative uses of your evening that you might have considered, but rejected in favor of what you chose to do.

•Read “In the News: Women Continue to Move into Top Jobs,” on page 19. Answer the “Think About It” question that follows.

What is Economics?

•1.3 Opportunity Cost and Choice

•Objectives:▫Define opportunity cost.▫Evaluate guidelines for making choices.▫Analyze the opportunity cost of attending

college.

Opportunity Cost

•Opportunity Cost – the value of the best alternative passed up for the chosen item or activity▫Ex. What’s the opportunity cost of you

taking $10 to go see a movie this Friday evening? OC varies for everyone OC can only be estimated

Choosing Among Alternatives

•Calculate opportunity cost•Take into consideration what requires the

most time and how much you have to offer

•Ignore sunk cost▫A cost you have already incurred and

cannot recover

The Opportunity Cost of College•Forgone earnings•Direct costs of college•Additional costs of college•Pain and suffering of college

•Weigh these costs against the potential reward of college

Homework

•Read p. 19-26 and complete 1.3 worksheet, and chapter 1 review.

•Due tomorrow.•Quiz over chapter 1 tomorrow.