Economics chapter 1 & 2 1:What is Economics? Scarcity & Factors of Production Opportunity...

Economics chapter 1 & 2

• 1:What is Economics?

• Scarcity & Factors of Production

• Opportunity Cost

• Production Possibilities Curve

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• 2: American Free Enterprise

• Growth & Stability

• Public Goods & Providing a Safety Net

Scarcity

• The basic economic problem which arises from people having unlimited wants while there are and always will be limited resources. Because of scarcity, various economic decisions must be made to allocate resources efficiently.

Needs vs. Wants

• Want vs. need  ( or needs vs. wants ) is one of the basic concepts of economics describing how what consumers want are not exactly what consumers need.

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• Needs would be defined as goods or services that are physiologically or biologically required for maintaining life. This would include the needs for air, food, water, clothing, shelter, sleep.

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• "Wants" are described as "having a strong desire for something" be it a consumable good, time, or money. Want is often a physiological desire. Fulfillment of wants make consumers’ lives more enjoyable.

Goods

• or capital goods  or intermediate goods Goods manufactured and used in further manufacturing, processing, or resale. Intermediate goods either become part of the final product or lose their distinct identity in the manufacturing stream,

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• while capital goods are the plant, equipment, and inventories used to produce final products.

Goods-consumer goods

• Any tangible commodity purchased by households to satisfy their wants and needs. Consumer goods may be durable or nondurable. Durable goods (e.g., autos, furniture, and appliances) have a significant life span, often defined as three years or more, and consumption is spread over this span.

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• Nondurable goods (e.g., food, clothing, and gasoline) are purchased for immediate or almost immediate consumption and have a life span ranging from minutes to three years.

Services

• 1.an act of helpful activity; help; aid: to do someone a service.

• 2. the providing or a provider of accommodation and activities required by the public, as maintenance, repair, etc.: The manufacturer guarantees service and parts.

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Factors of Production

• In economics, factors of production (or productive inputs) are the resources employed to produce goods and services.

• "Land" can include ecosystems while sometimes the overall state of technology is seen as a factor of production.

• In any event, it is the scarcity of the factors of production which poses humanity's economic problem, often forcing us to choose between competing goals.

Opportunity Cost

• Investopedia explains Opportunity Cost1. The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.

Here's another example: if a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.).

TRADITIONAL SYSTEM

• A traditional economy is a system where traditions, customs and belief systems determine its operation. In that state, this type of economic system may go unchanged for quite some time.

• One of the unfortunate hallmarks of a traditional economy is its relation to poverty.

Market System

• A market economy is economy based on the power of division of labor in which the prices of goods and services are determined in a free price system set by supply and demand.[1]

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• This is often contrasted with a planned economy, in which a central government determines the price of goods and services using a fixed price system.

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• Market economies are also contrasted with mixed economy where the price system is not entirely free but under some government control or heavily regulated, economy.

LAISSEZ-FAIRE

• An economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.

• Noninterference in the affairs of others.

Adam Smith –WEALTH OF NATIONS

• An Inquiry into the Nature and Causes of the Wealth of Nations (generally referred to by the short title The Wealth of Nations) is the masterpiece of the Scottish economist and moral philosopher Adam Smith. It was first published in 1776.

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• It is an account of economics at the dawn of the Industrial Revolution, as well as a rhetorical piece written for the generally educated individual of the 18th century - advocating a free market economy as more productive and more beneficial to society. The book is often considered to have laid the basic groundwork for modern economic theory.

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• One of the book's main themes is the concept of an invisible hand that naturally guides a society through self-interest

invisible hand of the market

• In economics, the invisible hand, also known as the invisible hand of the market, is the term economists use to describe the self-regulating nature of the marketplace

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• For Smith, the invisible hand was created by the conjunction of the forces of self-interest, competition, and supply and demand, which he noted as being capable of allocating resources in society.[2] This is the founding justification for the laissez-faire economic philosophy

Invisible Hand

• An economic principle, first postulated by Adam Smith, holding that the greatest benefit to a society is brought about by individuals acting freely in a competitive marketplace in the pursuit of their own self-interest.

Free Enterprise

• free enterprise

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Definition

• Business governed by the laws of supply and demand, not restrained by government interference, regulation or subsidy. also called free market.

Production Possibility Frontier

• In economics, a production-possibility frontier (PPF), sometimes called a "production-possibility curve" or "product transformation curve", is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources,

Production Possibility Frontier

Specialization

Specialization also occurs within the United States, for example, as citrus goods naturally occur in the warmer climate of the South and West, many grain products come from the farms of the Midwest and maple syrup comes from the maple trees of Vermont and New Hampshire.

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• Specialization can also refer to production, for example when in a factory an assembly line is organized in a specialized manner rather than producing the entire product at one production station.

PRODUCITIVITY

• Productivity

• is a measure of output from a production process, per unit of input.

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• Productivity is distinct from metrics of allocate efficiency, which take into account both the monetary value (price) of what is produced and the cost of inputs used, and also distinct from metrics of profitability, which address the difference between the revenues obtained from output and the expense associated with consumption of inputs.

TECHNOLOGY

• Anthropology. The body of knowledge available to a society that is of use in fashioning implements, practicing manual arts and skills, and extracting or collecting materials.

COMMAND SYSTEM

• Economic system in which the means of production are publicly owned and economic activity is controlled by a central authority.

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• Central planners determine the assortment of goods to be produced, allocate raw materials, fix quotas for each enterprise, and set prices. Most communist countries have had command economies; capitalist countries may also adopt such a system during national emergencies (e.g., wartime) in order to mobilize resources quickly.

COMMUNIST MANIFESTO

• Pamphlet written in 1848 by Karl Marx and Friedrich Engels to serve as the platform of the Communist League.

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• It argued that industrialization had exacerbated the divide between the capitalist ruling class and the proletariat, which had become impoverished, and called on the proletariat to overthrow the capitalists,

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• abolish private property, and take over the means of production. It predicted an eventual classless society and the gradual elimination of the need for a state.

SCIENTIFIC SOCALISM

• The term scientific socialism was used by Friedrich Engels to characterize the doctrines that he and Karl Marx developed and distinguish them from other socialist doctrines, which he dismissed as utopian socialism.

MIXED ECONOMY

• mixed economy

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• Definition

• Economic system in which both the private enterprise and a degree of state monopoly

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• (usually in public services, defense, infrastructure, and basic industries) coexist. All modern economies are mixed where means of production are shared between the private and public sectors. Also called dual economy.

GUNS-MORE $ ON MILITARY

• GUNS: Reaganomics

• U.S. President Ronald Reagan during the 1980s. The four pillars of Reagan's economic policy were to:[2]

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• Reduce government spending,

• Reduce income and capital gains marginal tax rates,

• Reduce government regulation of the economy,

• Control the money supply to reduce inflation.

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• In his stated intention to increase on domestic spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors. Reagan succeeded with lower marginal tax rates in conjunction with simplified income tax codes, and continued deregulation

BUTTER –MORE $ ON DOMESTIC

• Butter : During Carter's administration, the economy suffered double-digit inflation, coupled with very high interest rates,[22] oil shortages, high unemployment and slow economic growth.

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• Productivity growth in the United States had declined to an average annual rate of 1%, compared to 3.2% of the 1960s. There was also a growing federal budget deficit, which increased to $66 billion.

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• In his stated intention to increase on domestic spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors. Reagan succeeded with lower marginal tax rates in conjunction with simplified income tax codes, and continued deregulation