An Introduction into Economics

An Introduction into Economics

By: Mr. Warner2010

By: Mr. Warner2010

What is Economics?

Economics - A social science that studies the production, distribution, and consumption of goods and services.

Whhhhaaaaaaaaatttt?????

What is Economics?

Production, Distribution, and ConsumptionProduction - Using resources to create

goods or services (includes manufacturing, storing, and packaging)

Distribution - The way goods and services are divided up among individuals.

Consumption - The final purchase of goods or services.

The Lemonade Stand

Imagine that you decide to sell lemonade at a lemonade stand. Let’s examine the economic process that involves you, your lemonade, and your stand.

The Lemonade Stand: Production

Before you can sell lemonade, the first thing you will need to do is actually make the drink.

You will need to purchase resources (lemons, sugar, water, measuring cups, spoon, cups, etc.). Then you will need to spend the time making the lemonade. In addition, you might have to purchase materials to create your stand (wood, paint, hammer, nails, etc.), which will also require time.

You will also need to make sure you don’t create too little or too much lemonade. If you create too much, then you might have extra… basically it’s money wasted. If you create too little, then you will realize that you could have made more money.

This is called production.

The Lemonade Stand: Distribution

Once you have created your lemonade, the next process is to figure out where to sell your drink.

You will have to think and maybe research local areas that would be ideal for selling a refreshing drink.

Would it be best to sell near a construction site, near your house, or near an empty field?

Would you want to sell your drink during the winter or the summer? Why?

To which type of person would you want to try and sell your drink? For how much money are you going to sell your lemonade? All of these questions deal with something called distribution.

The Lemonade Stand: Consumption

After you have your lemonade made and a place to sell it, you then need to rely on people to purchase your product.

Customers have to decide if they (a) are thirsty and (b) are willing to spend money on your drink.

Other factors they might consider are if the lemonade looks safe to drink or the way in which you treat them when they buy from you.

The most important incentive for you is probably to make money. Money is exchanged for goods and services. In this case, the good is the lemonade while the service is you making the lemonade.

This is called consumption.

An economic model that describes how the prices of goods and services in a market naturally become balanced between two things…The availability of a productAnd the demand of a product

Supply - The amount producers are willing to offer

Demand - The amount consumers desire to purchase

Let’s discuss Christmas shopping…

Supply & DemandWhen the price of something is high, less people will be able to make a purchase and as a result producers will not make a large amount of that product. Example: Bugatti Veyron (a $1,700,000 car).

However, when the price of something is low, more people will be able to make a purchase and as a result producers might make a lot more of that product. Example: Soda

Supply & Demand

Economic Systems

There are many different ways that governments decide to handle the production, distribution, and consumption of goods and services.

Some governments get really involved and others try to get involved as little as possible.

Four economic systems we will examine are…Traditional EconomiesCommand EconomiesMarket EconomiesMixed Market Economies

Traditional Economies

People use the resources they have to make what they need to live (clothes, tools, furniture)

Decisions are based on religion or what people have done in the past

Responses to change are poorFound in tribal regions of South America

and Africa

Command Economies

A central authority (government) has control of the resources and makes the economic decisions

There is very little personal freedomFound in communist governments

Market Economies

Individuals are free to act on their own self-interest

Government involvement is very limitedAlso called “Free Enterprise”

Mixed Market Economies

Mainly like a market economy, but mixes some elements of a command economy

Allows for publicly and privately owned businesses

Government involvement is to intervene and fix problems rather than to own businesses for a profit

Market v. Command Economies

Other Economic Terms

Specialization - A division of work. Everybody completes a different task to get the job done. Think of an assembly line: a single person does not build a car; he/she only has one small job to do, like install the headlights. He/She is a “specialist” in one thing. Requires little training.

Capitalism - A system where production and distribution are privately owned and operated for a private profit. Decisions on supply, demand, price, distribution, etc. are made by individuals instead of a government. Found in Market Economies.

Market - A place, system, or procedure where buyers and sellers are brought together (does NOT have to be a physical place).

Monopoly - When an individual or company has so much control over a particular product or service that he/she/it can decide the terms on which others can have access to it. Examples: the telephone company, Microsoft, Standard Oil

Resources

Lemonade Stand: http://www.clipart.com Supply and Demand Graph:

http://www.jongriffith.com/wp-content/uploads/basic_supply_demand.png

Bugatti Veyron Picture: http://www.thesupercars.org/top-cars/most-expensive-cars-in-the-world-top-10-list-2007-2008/

Soda Picture: http://www.treehugger.com/files/2009/10/soda-tax-raise-10-billion-per-year.php

Cochran. (1999). Understanding Economics [Full Video]. Available

from http://www.discoveryeducation.com/