Building A Definition of Economics ~ Goods and Bads ~ Utility - The satisfaction one receives from a good.

. Disutility - The dissatisfaction one receives from a bad. Good - Anything that gives a person utility or satisfaction (tangible or intangible goods). i.e. Computer. Bad Anything that gives a person disutility or dissatisfaction. i.e. Flu

~ Resources ~ The production of all goods and services requires the resources. - Resources the input or factors of production. Four (4) categories of resources: 1) Land : All natural resources, such as minerals, forests, water, and unimproved land. - i.e. oil, wood 2) Labour : The physical and mental talents people process. - i.e. a person building a house. contribute to the production

3) Capital : Produced goods that can be used as inputs for further production. - i.e. factories, machinery, tools, computers, and buildings.

4) Entrepreneurship. - The particular talent that some people have for: i) organizing the resources of land, labour and capital to produce goods. ii) seeking new business opportunities. iii) developing new ways of doing things. Economics, the Science of Scarcity

- The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants. Key Concepts in Economic 1) Scarcity: ~The condition in which our wants are greater than the limited resources (i.e. land, labour, time and etc) available to satisfy those wants. ~Scarcity is our infinite wants for goods hitting up against finite resources ~i.e. we want goods, but there are just not enough resources available to provide us with all the goods we wants. ~Three (3) effects of scarcity: 1)the need to choices : People have to make choices because of scarcity. We must choose which wants we will satisfy and which we will not. i.e. Do I go to Bali for holiday? Or Do I pay off my car loan earlier?

2)the need for rationing device : A means for deciding who gets what of available resources and goods. 3)Competition: Competition exists because of scarcity. Because goods are limited, individuals compete to obtain the goods that are available, and studying this competitive process is what an economist does.

2)Opportunity cost. ~The most highly valued opportunity or alternative forfeited when a choice is made. ~The higher the opportunity cost of doing something, the less likely it will be done. ~i.e. The opportunity cost of reading the chapter is the value of what is forgone this might be measures in the lost income for a student who could be working at a job, or a lost hour of watching television or a forgone nap. 3)Exchange/ trade. The process of giving up one thing for another. People enter into exchanges to make themselves better off.

Economic Categories Two (2) economic categories are: 1.)Positive economics vs Normative economics. POSITIVE ECONOMICS ~The study of what is in economic matters. ~Deal with cause-effect relationships that can be tested. ~i.e. What is the effect of a cut in income taxes on unemployment rate? Cause Effect Normative economics The study of what should be in economic matters. Deal with value judgments and opinions that cannot be tested. i.e. The income taxes should be cut because the income tax burden on many taxpayers is currently high. Judgment and Opinion

2.)Microeconomics vs Macroeconomics ~Microeconomics :

deals with human behavior and choices as they relate to relatively small unitsan individual, a business firm, an industry, a single market. QUESTIONS: How does a market work? What level of output does a firm produce? What price does a firm charge for the good it produces? How does a consumer determine how much of a good he or she will buy? Can government policy affect business behavior? Can government policy affect consumer behavior? ~Macroeconomics deals with human behavior and choices as they relate to highly aggregate markets (e.g., the goods and services market) or the entire economy. QUESTIONS: How does the economy work? Why is the unemployment rate sometimes high and sometimes low? What causes inflation? Why do some national economies grow faster than other national economies?

Wall Street Journal The Wall Street Journal is a is a rich source of information which provides real life examples of micro- and macro economic activities. Check todays issue to see the most current news. http://www.wsj.com Other Useful Sources of Current Economic News New York Times http://www.nytimes.com/pages/business/index.html Financial Times

http://www.ft.com/home/us The Economist http://www.economist.com/index.html

Economic Activities Two (2) types of economic activities: 1)Producing. - Production possibilities frontier (PPF). PPF: Represents the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources Two (2) types of PPF:

1) The Straight Line PPF constant opportunity costs.

Opportunity costs of 1 TV = 1 computer. pp. Costs between TV and Computer is constant.

i.e. Point A to B => 10k computers (from 50k to 40K)not produces but 10k TV set are produce; ratio is 1:1.

2) The Concave downward PPF increasing opportunity costs.

As more of one good is produced, the opp. Costs between computers and TV sets changes. As the economy produces more TV sets, the opp. costs of producing TV sets increases.

i.e. Point A to B => opp. cost of 1 TV = computers. Point B to C => opp. costs of 1 TV = computers Law of Increasing Opportunity Costs As more of a good is produced, the opportunity costs of producing that good increase. must employ resources which are less efficient and/ or appropriate when increasing production. In real world, most PPF lines are concave downward.

Production Possibility Frontier Framework for Understanding

1)Scarcity Where wants (for goods) are greater than the resources available to satisfy those wants. Scarcity implies that some things are attainable. - Attainable consists of the points on the PPF and all point below PPF. - i.e. Point A to point F. - Unattainable - consists of the point above and beyond the PPF. - i.e. Point G.

2)Choice ~Individuals must choose the combination of the two goods they want to produce within the attainable region. i.e. Combination of point A or point B or point C 3) Opportunity Costs ~The value of the best alternative forgone when a choice is made. ~Move from one point to another on the PPF. ~i.e. Point A to point B => Opp. Cost of 1 car = TV sets. 4) Productive Efficiency

The condition where the maximum output is produced with given resources and technology. Lie on PPF ( Point A B C D).

5) Productive Inefficiency The condition where less than the maximum output is produced with given resources and technology. Productive inefficiency implies that more of one good can be produced without any less of another good being produced. Lie inside the PPF (Point F).

6) Unemployment Resources are unemployed when it is not producing

the maximum output with the available resources and technology (productive inefficiency). 7) Economic growth An increase in resources (i.e. a new discovery of resources) or an advance in technology can increase the production capabilities of an economy, leading to economic growth and shift outward in the production possibilities frontier.

Production Possibility Frontier Framework for Understanding Economic Growth: Advanced Technology
~An advance in technology commonly refers to the ability to produce more output with a fixed amount of resources OR the ability to produce the same output with fewer resources.

Economic Systems Economic System: the way in which society decides to answer key economic questionsin particular those questions that relate to production and trade. There are hundreds of countries but only TWO major economic systems. We refer to these two major systems as Socialism and Capitalism. Most Countries have Chosen Elements from BOTH economic systems. Mixed Capitalist Economies An economic system characterized by largely private ownership of factors of production, market allocation of resources, and decentralized decision making. Most activities take place in the private sector in this system, but government plays a substantial and regulatory role. The United States has a Mixed Capitalist Economy. Economic Systems and the PPF: ~Who Decides Where the Economy Will Operate on the PPF? Capitalist: The Market Decides Socialist: The Government Decides ~What Goods Will Be Produced? This is really asking Where on the PPF will an economy operate? Capitalist: The Market will dictate what goods will be produced. Socialist: The Government will have a large role in determining what will be produced. ~How Will The Goods Be Produced? Capitalism: decided by private producers. Socialism: government plays a large part in deciding what is produced

~For Whom Will The Goods Be Produced? Capitalism: goods will be produced for those persons who are able and willing to pay the prices for the goods. Socialism: more government control over who gets what goods.

Trade Capitalism: both parties benefit from the trade. Socialism: trade is viewed as making one person better off at the expense of another person Prices Capitalist : Prices ration goods and services Prices convey information Prices serve as an incentive to respond to information Socialist : Price is viewed as being set by greedy businesses with vast economic power