Objectives: Describe the subject matter and methods of economics . Topics to be discussed What is Economics Studyfield Career oportunities Human wants and needs Scarcity Opportunity Cost 3 Basic Questions 4 Factors of Production Micro and Macro Economics What is Economics Quiz Choose the correct answer Economics is the political science that deals with unemployment, inflation, taxes, business cycles, money, supply, and trade. Economics is the social science that studies money and banking Economics is the social science that examines the interaction of demand and supply Economics is the social science concerned with the problem of scarcity And the answer is Economics is the social science concerned with the problem of scarcity What is Scarcity? Not enough resources to meet demand Why do you think scarcity is a problem? What else is Economics? Economics is common sense made confusing. Economics is the science of decision making.
Adam Smith: The Father Of Economics Smith's life begins on June 16, 1723, at his baptism in Scotland
Publication of "An Inquiry Into the Nature and Causes of the Wealth of Nations" (1776), which would cement his place in history. Economics? The social science concerned with how individuals,businesses,nations societies decide how to satisfy there unlimited wants given our limited resources. In other words, it is the study of how scarce resources are allocated to fulfill the infinite wants of consumers I cant buy a car if I dont have an income! The science of decision making How to make decisions The main branches of science (also referred to as "sciences", "scientific fields", or "scientific disciplines") are commonly divided into two major groups: social sciences, which study human behavior and societies, and natural sciences, which study natural phenomena (including fundamental forces(physics) and biological life) Types of Economics Macroeconomics branch of economics that deals with economic theory and the economic decisions of large bodies like the government. Theories of Economics Countries and their governments Trade between countries Microeconomics branch of economics that deals with behavior and decisions of smaller unit like individuals and businesses. Families, businesses, and communities Domestic economies
Positive and Normative Economics O Health care can be improved with more tax funding O Pollution control is effective through a system of fines O Society ought to provide homes for all O Any strategy aimed at reducing factory closures in deprived areas would be helpful O Positive Statements: O Capable of being verified or refuted by resorting to fact or further investigation O Normative Statements: O Contains a value judgement which cannot be verified by resort to investigation or research
The Economic Problem Scarcity What is it? Limited resources but unlimited wants Unlimited wants VS Limited Resources You cant buy 10 candy bars if the store only has 5 candy bars to sell. Cant buy 3 burgers if you only have enough money for 1. What are some things that you want to have? Do you have the resources to purchase them? Needs VS Wants What are some of your needswants.
Scarcity means We must use things efficiently in order to maximize the number of goods and services we can produce. Dont waste The Economic Problem (Scarcity) We cant have everything we want!! Because of this we need to make choices. What we want (need) VS what we can give up (live without) How does scarcity impact you? Have you ever wanted something you couldnt afford to buy? Did a store ever run out of the item that you wanted? Has anyone ever wanted you to do something that you didnt have time to do? Production Possibilities Curve Graph showing the maximum combinations of goods and services that can be produced from a fixed amount or resources in a given period of time. Because resources are limited we are only able to use so much of them to produce certain goods. Pg. 17 18 of your text 3 Basic Economic Questions What to produce? With limited resources, deciding what is needed the most is often a factor in determining what will be produced. What is the need or want of this product? What is the point of making a product that no one is going to buy. Businesses need to make moneyso they choose products that people want. 3 Basic Questions Cont How should it be produced? Technology, labor, capital, ect. getting the lowest cost to make the product. Are we going to make the product from scratch or will a machine be making the product. What will each option cost? Will having new technology allow us to lower our expenses?
3 Basic Questions Cont Whom should it be produced for? Who is going to use this product? Did Apple market the ipod to the large population of elderly people in the U.S. or the youth? Why? Most goods and services are distributed to individuals through a price system. If you want it and can afford to buy ityou will. Products can also be distributed through other means; force, first come, lottery, majority, ect. Resources Factors of Production Natural resources (Land) free gifts of nature Land, minerals, oil, forests, air, and timber Capital Resources manufactured aids to production Tools, machines, equipment, factories Things used in producing goods and services and getting them to consumers. Human Resources (Labor) mankinds physical and mental talent These are the skills people have that are used to produce goods and services. Entrepreneur the individual who combines the factors of production in order to produce a good or service. Risk taker, policy maker, and innovator Would it be possible to start a business without one of these factors? If you would create any type of business you wanted what would it be and what would you need to get started?
Opportunity Cost The true cost of choosing one alternative over the other. Trade offs giving up one thing in order to obtain another. The one that you give up when the choice is made. Give an example of a time when you had to make an economic choice. What was the opportunity cost? Opportunity cost is the opportunity lost ECONOMIC AGENTS Definition of Economic agent
An economic agent is a person, company, or organization that has an influence on the economy by producing, buying, selling or taxation
Examples of economic agents include: individuals(households, consumers), business, government and international(foreign) sector
College Vs. Work What are you planning on doing after you finish high school? College or work What factors did you consider when making this decision? money now or money later Family How will this decision impact your future? What are the trade offs of this decision? Opportunity cost? Recap What is the basic economic problem? As consumers what do we need to weigh when making economic choices? What are the four factors of production? What is economics? How do trade offs lead to opportunity costs?
Lets keep on moving Economics is common sense made confusing, so if you are confused you are likely not alone!!
If you have any questions on the material that we just covered please stop me here and we will review a bit on what you are having a tough time with. Circular flow of income and output What does the circular flow model show us? Why is a relationship between the factor market and the product market necessary for the economy to stay strong?
Business Cycle Parts of the Business Cycle Peak (boom) Highest point in the economic cycle. Economy is at its best and will likely begin to contract. Recession (contraction) decline in the economies performance that could lead to depression. Not long term and does not always impact other economies Trough (depression) A sustained economic downturn that impacts our economy and that of other countries. Lowest economic point Recovery (expansion)- Economic activity begins to pick up and depression begins to end. Economic growth occurs
History of the U.S. Economy Look up the economic patterns of the United States from the 1800s until now and map out the various points on the business cycle to what was happening in the United States. Recap What are the three basic economic questions? Compare and contrast micro and macro economics. Explain the circular flow of income and output as it relates to the economy. Describe the business cycle. Inflation The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year. Recession A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP). A recession generally lasts from six to 18 months, and interest rates usually fall in during these months to stimulate the economy by offering cheap rates at which to borrow money. Recession is a normal (albeit unpleasant) part of the business cycle; however, one-time crisis events can often trigger the onset of a recession. The global recession of 2008-2009 brought a great amount of attention to the risky investment strategies used by many large financial institutions, along with the truly global nature of the financial sytem. As a result of such a wide-spread global recession, the economies of virtually all the world's developed and developing nations suffered extreme set-backs and numerous government policies were implemented to help prevent a similar future financial crisis What is the connection between Inflation and Recession? Which came first the chicken or the recession? In many cases the causes of recession can be confusing. Can inflation cause/worsen a recession? Or does a recession cause/worsen inflation? Botha recession does not always have a single cause, but can be caused by many factors. Once a recession begins, its impact is usually felt all over the economy, including inflation. Inflation occurs without a recession, but a dramatic change in the value of money can push an unstable economy into a recession. Look at the causes or influences of our most recent recession Poor business practices started the recession It was likely on its way already Inflation Decline in the stock market Increased foreclosures/ drop in housing prices In Short Economics is common sense made confusing
We cant have everything that we want, so we have to make choices with our money. Businesses have to make choices with their products. Society has to make choices about how it should or will function. The Government makes choices about laws and expenses. Just to name a few!!!
Chapter Review What is the basic Economic question? What does a production possibilities curve show us? What are the four factors of production? What are trade offs and opportunity costs? What are the three basic economic questions? Define microeconomics and macroeconomics. What are inflation and recession? How does the circular flow of income and output impact the economy?