Economics LAP 6Economics LAP 6

Are You Satisfied?Are You Satisfied?Economics and Economic ActivitiesEconomics and Economic Activities

ObjectivesObjectives

Discuss the nature of economics.Discuss the nature of economics.

Explain economic activities.Explain economic activities.

Discuss the nature of economics.Discuss the nature of economics.

ObjectiveObjective

• If you were to find a magic If you were to find a magic lamp with a genie inside, what lamp with a genie inside, what would your wishes be?would your wishes be?

• No one can identify all of No one can identify all of his/her wishes and dreams.his/her wishes and dreams.

• It’s purely human nature.It’s purely human nature.

• Some might even say that it’s Some might even say that it’s economics!economics!

What Is Economics?What Is Economics?

• The study of how to meet unlimited, The study of how to meet unlimited, competing wants with limited competing wants with limited resources.resources.

• The process of deciding how to The process of deciding how to “ge“get the most with the least”—t the most with the least”—obtaining the greatest satisfaction obtaining the greatest satisfaction from the least amount of resources.from the least amount of resources.

Economics in ActionEconomics in Action

• Countries ask, Countries ask, “Ho“How can we w can we meet our citizens’ wants with meet our citizens’ wants with the resources we have the resources we have available?”available?”

• Businesses ask, Businesses ask, “Wh“What at products should we produce products should we produce and/or provide to consumers?”and/or provide to consumers?”

• Consumers ask, Consumers ask, “Ho“How should w should we spend our incomes to get we spend our incomes to get the goods and services we the goods and services we want?”want?”

What Are Wants?What Are Wants?

• Wants are desires for things that Wants are desires for things that may or may not be required.may or may not be required.

• Wants can be divided into two Wants can be divided into two categories:categories:

Economic wants: desires for things Economic wants: desires for things that can only be obtained by that can only be obtained by spending moneyspending money

Noneconomic wants: desires for Noneconomic wants: desires for things that can be obtained without things that can be obtained without moneymoney

• We will be discussing We will be discussing economic economic wants.wants.

Characteristics of Wants

• UnlimitedUnlimited Everyone always has Everyone always has

wants.wants.

• ChangingChanging Wants change as Wants change as

situations change.situations change.

• CompetingCompeting We must choose which We must choose which

wants to satisfy at any wants to satisfy at any one time because our one time because our resources are limited.resources are limited.

Economic ResourcesEconomic Resources

• ResourcesResources Items used to accomplish other Items used to accomplish other

activities such as producing or activities such as producing or providing goods and servicesproviding goods and services

• Three categories of resources:Three categories of resources: Natural resourcesNatural resources

Items found in nature that are Items found in nature that are used to produce goods and used to produce goods and servicesservices

Human resourcesHuman resources People who are valued for the People who are valued for the

physical and mental work that physical and mental work that they do to produce goods and they do to produce goods and servicesservices

Capital goodsCapital goods All of the manufactured or All of the manufactured or

constructed items that are used constructed items that are used to produce goods and servicesto produce goods and services

Our Resources Are LimitedOur Resources Are Limited• Our natural resources are Our natural resources are

limited by:limited by: An increasing global An increasing global

populationpopulation The difficulty or cost involved The difficulty or cost involved

in obtaining themin obtaining them A lack of technology in some A lack of technology in some

developing countriesdeveloping countries Natural resources that may be Natural resources that may be

running outrunning out Weather conditionsWeather conditions The environmentThe environment

Our Resources Are LimitedOur Resources Are Limited

• Our human resources are Our human resources are limited because:limited because:

Only some people are willing Only some people are willing and able to work.and able to work.

Many parts of the world are Many parts of the world are experiencing worker experiencing worker shortages in certain shortages in certain professions because of:professions because of: A lack of special trainingA lack of special training Qualified potential employees Qualified potential employees

who do not live where the job who do not live where the job opportunities existopportunities exist

Our Resources Are LimitedOur Resources Are Limited

• Our capital goods are Our capital goods are limited by:limited by:

The amount of labor and The amount of labor and natural resources available natural resources available to produce themto produce them

The money available to The money available to purchase thempurchase them

A lack of technology in A lack of technology in some parts of the worldsome parts of the world

Economics: The Study of ScarcityEconomics: The Study of Scarcity

• Scarcity is caused by the gap Scarcity is caused by the gap between unlimited wants for goods between unlimited wants for goods and services and limited resources.and services and limited resources.

• Our goods and services are scarce Our goods and services are scarce because not everyone can have because not everyone can have everything s/he wants.everything s/he wants.

• Scarce resources must be allocated Scarce resources must be allocated to their best use.to their best use.

• Economizing:Economizing: Deciding which goods and Deciding which goods and

services to purchase or provide so services to purchase or provide so that the most satisfaction can be that the most satisfaction can be obtainedobtained

Trying to obtain the greatest Trying to obtain the greatest satisfaction from limited resourcessatisfaction from limited resources

Making Good ChoicesMaking Good Choices

• Opportunity cost:Opportunity cost: The benefit that is lost when you The benefit that is lost when you

decide to use scarce resources for decide to use scarce resources for one purpose rather than for anotherone purpose rather than for another

Examples:Examples: If you study for an economics exam If you study for an economics exam

rather than going out with friends, rather than going out with friends, your opportunity cost is the lost your opportunity cost is the lost benefits of socializing with others.benefits of socializing with others.

If a retailer closes on Sundays, its If a retailer closes on Sundays, its opportunity cost is the lost benefits opportunity cost is the lost benefits received from being open for received from being open for business on Sundays.business on Sundays.

If a government spends more money If a government spends more money on defense than on education, its on defense than on education, its opportunity cost is the lost benefits opportunity cost is the lost benefits from education.from education.

Making Good ChoicesMaking Good Choices

• Before making a decision, you should Before making a decision, you should examine the opportunity costs examine the opportunity costs involved.involved.

• Economic choices involve trade-offs.Economic choices involve trade-offs. We must be willing to give up all or We must be willing to give up all or

part of one thing in order to get part of one thing in order to get something else.something else.

Our trade-offs should be based on Our trade-offs should be based on the opportunity costs involved.the opportunity costs involved.

Basic Economic QuestionsBasic Economic Questions

• What will be produced?What will be produced? What and how many goods and What and how many goods and

services should the society services should the society produce?produce?

How should the society allocate How should the society allocate its limited resources between its limited resources between production of capital goods and production of capital goods and consumer goods?consumer goods?

Basic Economic QuestionsBasic Economic Questions

• How will the products be How will the products be produced?produced?

What are the best, most efficient What are the best, most efficient ways to use the society’s limited ways to use the society’s limited resources to produce its resources to produce its products?products?

Basic Economic QuestionsBasic Economic Questions

• How will the products be How will the products be allocated?allocated?

How will the goods and services How will the goods and services be divided among the people?be divided among the people?

How will individuals, businesses, How will individuals, businesses, and governments share the and governments share the products?products?

Economic Decision-MakingEconomic Decision-Making

• The heart of economics The heart of economics is decision-making.is decision-making.

• The objective of The objective of studying economics is studying economics is to prepare for:to prepare for:

Effective decision-Effective decision-makingmaking

Responsible Responsible citizenship in societycitizenship in society

Explain economic activities.Explain economic activities.

ObjectiveObjective

Getting What We NeedGetting What We Need

• We rely on others to provide We rely on others to provide us with some of the goods us with some of the goods and services that we desire.and services that we desire.

• Goods, services, and Goods, services, and resources must move from resources must move from one person to another.one person to another.

• Four economic activities Four economic activities make this movement make this movement possible.possible. ConsumptionConsumption ProductionProduction Exchange Exchange DistributionDistribution

Economic Activities: ConsumptionEconomic Activities: Consumption

• Consumption is the Consumption is the economic process or activity economic process or activity of using goods and services.of using goods and services.

• The ultimate goal of all The ultimate goal of all economic activity is economic activity is consumption.consumption.

• Anyone who uses goods and Anyone who uses goods and services is a consumer.services is a consumer.

• People consume goods and People consume goods and services to satisfy their services to satisfy their wants and needs.wants and needs.

Economic Activities: ProductionEconomic Activities: Production

• Production is the economic process Production is the economic process or activity of producing goods and or activity of producing goods and services.services.

• For consumption to occur, goods For consumption to occur, goods and services must be produced.and services must be produced.

• Individuals who make or provide Individuals who make or provide goods and services are called goods and services are called producers.producers.

• Producers transform resources into Producers transform resources into more valuable goods and services.more valuable goods and services.

• The relationship between The relationship between consumption and production must consumption and production must be balanced.be balanced.

Economic Activities: ExchangeEconomic Activities: Exchange• Producers, consumers, and Producers, consumers, and

resource owners exchange resource owners exchange money payments.money payments.

• Most resource ownersMost resource ownersrequire some form of require some form of payment—usually money—payment—usually money—for the use of for the use of their resources.their resources.

Resource owners are Resource owners are people and organizations people and organizations who provide human who provide human resources, natural resources, natural resources, or capital goods resources, or capital goods for use in production.for use in production.

Payments for human Payments for human resources:resources: WagesWages SalariesSalaries ProfitsProfits

Payments for capital goods:Payments for capital goods: InterestInterest RentRent

Producers make these Producers make these money payments to get money payments to get resources for production.resources for production.

Economic Activities: ExchangeEconomic Activities: Exchange• After acquiring enough After acquiring enough

resources, producers are able resources, producers are able to produce goods and to produce goods and services.services.

Consumers make money Consumers make money payments to obtain these payments to obtain these goods and services.goods and services.

This money payment is the This money payment is the price of the good or service.price of the good or service.

• Exchanges among producers, Exchanges among producers, consumers, and resource consumers, and resource owners result in a circular owners result in a circular movement of resources, movement of resources, goods, services, and money goods, services, and money payments.payments.

Economic Activities: DistributionEconomic Activities: Distribution

• Distribution is the economic Distribution is the economic process or activity by which process or activity by which income is divided among resource income is divided among resource owners and producers.owners and producers.

• Money received by resource Money received by resource owners and producers is known owners and producers is known as income.as income.

Resource owners use income to Resource owners use income to buy more goods and services.buy more goods and services.

Producers use income to buy Producers use income to buy more resources.more resources.

Economic Activities: DistributionEconomic Activities: Distribution

• Resource owners and producers Resource owners and producers often engage in a tug of war over often engage in a tug of war over how to divide the income they how to divide the income they receive from consumers.receive from consumers.

If resource owners don’t think If resource owners don’t think their incomes are large enoughtheir incomes are large enough They might not share their They might not share their

resources with producers resources with producers anymoreanymore

Which would cause production Which would cause production to ceaseto cease

If producers don’t think their If producers don’t think their incomes are large enoughincomes are large enough They might not make any more They might not make any more

goods and servicesgoods and services Which would cause consumption Which would cause consumption

to ceaseto cease

The way in which they divide The way in which they divide their income depends on their their income depends on their society’s economic system.society’s economic system.

Money ValuesMoney Values• Consumers pay more for things Consumers pay more for things

that bring them greater that bring them greater satisfaction.satisfaction.

• Goods and services that give Goods and services that give little satisfaction are less little satisfaction are less expensive.expensive.

3.2GHz3.2GHz

• The values attached to money The values attached to money payments depend on:payments depend on:

ProductivityProductivity Productive resources usually earn Productive resources usually earn

more than less productive ones.more than less productive ones.

DemandDemand As people’s demand for As people’s demand for

resources, goods, and services resources, goods, and services increases, so do the money increases, so do the money payments they are willing to make.payments they are willing to make.

Availability or supplyAvailability or supply Resources, goods, and services Resources, goods, and services

that are abundant are valued less that are abundant are valued less than scarce ones.than scarce ones.

• Everyone participates in economic activities.

• What does your school consume?

• What does the school produce?

• What resources does the school use?

• Where do these resources come from?

• How does the school take part in exchange and distribution activities?

• The Howell family has owned Happy Acres Farm for 150 years.

• The state intends to build a highway across the farm.

• The Howell’s don’t want to sell Happy Acres.

• The state is exercising its power of eminent domain to seize the farm without the family’s consent.

The state will pay the family for the property.

The state—not the Howells—gets to set the purchase price for the farm.

• Is that fair?

• Should the state be allowed to seize the property?

• What do you think?

MBAResearch

Acknowledgments

Original DevelopersChristopher C. Burke,

April J. Miller, MBAResearch

Version 1.0

Copyright © 2010MBA Research and Curriculum Center®

Digital-based photography sources:

DIGITAL VISION LTD.Teenager TodayObj. B: #130271Photos copyright Digital Vision Ltd., all rights reserved. 833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5

Copyright:

All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.