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• Chapter 1 What is economics?
Chapter 1
• EconomicsEconomics – study of the choices that – study of the choices that consumers and producers make.consumers and producers make.
• CapitalismCapitalism – United States Economic System. – United States Economic System. Laissez Faire – Free Enterprise – Private Laissez Faire – Free Enterprise – Private Property-Property-
• Adam SmithAdam Smith – the – the ““Wealth of NationsWealth of Nations””
Scarcity• The Fundamental
Economic Problem• Unlimited needs and
wants with limited resources = scarcity which leads to choices for producers.
4 factors of Production
• Human Resources• Capital Resources• Natural Resources• Entrepreneurship
Goods and Services
• Goods—tangible items
• Services—not physical
• *both require scarce resources to produce and satisfy human wants
Assignment1. Define the following terms:ScarcityProductive resourcesEconomicsHuman resourcesLabor EntrepreneurNatural resourcesCapital goodsGoodServices
• 2. Go to page 9, 1.1 Assessment, answer
• 1,4, and 6
• What to Produce?• How to Produce?• For whom to Produce for?
• What to Produce?• How to Produce?• For whom to Produce for?
Trade Offs and Opportunity Costs
• Alternatives –giving up one thing for the use of another
• The next best alternative
• Example – what value does a person lose if they decide to do one thing versus the other
The Production Possibilities Frontier - PPC
tanks
sailboats
PPC continued …
• Trade offs and opportunity costs• The costs of idle resources?• Economic growth• As a entrepreneur – you must decide which
product is in more demand and concentrate your production efforts on the item in more demand by the public.
Forms of exchange
• Barter - trade – ancient societies
• Money – measure of value
• Credit – borrowed money
Journal 2
• Is it likely you will become successful or even rich? Is this important to you?
• What choices for your future might you make differently if you thought you had little chance of success?
• How might you and the economy as a whole suffer as a result of your pessimism?
Chapter 22.1, 2.3
Economic Systems
Types of Economic studies
Microeconomics• Focuses on yours and
others economic behaviors• Focuses on the factors that
influence individual economic choices
• i.e., the smaller picture• the individual pieces of the
economic puzzle
Macroeconomics• Focuses on the
performance of the economy as a whole, especially the national economy.
• Fits all the pieces together looks at the big picture
Types of Economies
Types of Economies
1. Traditional Economies
•Based on custom and tradition•Products produced and distributed among the groups•Only items that are necessary are produced•Rarely used today
Command Economy
• Government officials make decisions
• Planned economies • Ancient system – not
seen today
Market Economies
• Individuals hold control and answer the three basic economic questions
• Self-interest• System is set up to
reward people – incentives exist
Mixed Economies
• Authoritarian / Communism – government controls all factors of production
• Example – U.S.S.R.• Capitalism – government
involvement is limited• Example – U.S.A.
• Democratic Socialism – government ownership is limited to key industries
• Example - Canada
Five features of the U.S. Free Enterprise System
• Free enterprise – an economic system in which business can be conducted freely with limited gov. involvement.
• Private property – people have the right to own private property and enter into contracts.
• Engage in economic competition!• Make decisions based on self-interest!• Participate in the economy with limited government
involvement!
Quiz 1• 1. What are the three economic questions?• 2. _______ focuses on the performances of the economy
as a whole.• 3. _______ looks at the smaller pieces of the economy.• 4. _________ an economic system in which business can
be conducted freely with limited gov. involvement.• 5. _________ the fundamental economic problem.• 6. _________ the study of choices consumers and
produces make.• 7.__________ the American economic system.• 8. _________ economic belief that the government
should leave the economy alone.• 9. __________ political party that believes in the above.• 10. _________wrote “Wealth of Nations”
Circular Flow Model
Types of exchanges :
Households and Government
-households provide resources to the government for income
-households pay taxes to the government for services
Households and Businesses
-households provide resources to businesses for income
-households pay businesses for products
Circular Flow Model Cont.
• Businesses and Government – -businesses provide products to the government
for money– -businesses pay taxes to the government for
service
Key terms :
• Utility - usefulness of a product - The utility of a certain good can vary from person to person.
• Self – sufficiency – when you can fulfill all your needs with no outside influence
• Interdependence – when one area or region is affected because of the events and incidences that occurred in another region.
Key Terms cont.
• Productivity – level of output that results from a given level of input
• Efficiency – the use of the smallest amount of resources to produce the greatest amount of output
• Division of labor – assigning a small number of tasks to each worker
• Specialization – the focus on one activity
2.1Comparative Advantage
Absolute Advantage v. Law of comparative advantage
• Absolute advantage– Being able to do something
using fewer resources than other producers require.
– No need to cooperate
Not the best guide for deciding what to do.
• Law of Comparative Advantage– The worker with the lower
opportunity cost of producing a particular output should specialize in that output
SpecializationOccurs when individual
workers focus on single tasks, enabling each one to be more efficient and productive
Specialization
• Absolute advantage focuses on which of you uses the fewest resources
• Comparative advantage focuses on what else those resources could have produced– That is, the opportunity
cost of those resources– Indicates who should do
what (specialize)
Specialization
• Resources are allocated most efficiently across the country and around the world when production and trade conform to the law of comparative advantage
Specialization• Specialization• Based on comparative
advantage• Did you make anything
that are wearing?• Cotton Shirt• Farmer grows cotton,
someone spun cotton to thread, someone wove thread into fabric,
• Sewed fabric to shirt, store sold it
Division of Labor• Division of labor• Each worker specializes in
a separate task• Allows the group to
produce much more• 1. task assigned to ability
and preference• 2. repetitive tasks makes
perfection• 3. allows for new labor
saving techniques
Homework Assignment
• Chapter 1 and 2 Review economic terms• Write the word and definitions down• P. 29 and 57