Chapter One

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Chapter One
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What is Economics?

• Study of how flows through our economy
• How does the bowl of cornflakes make it to your
  breakfast table?
• (Diagram)
• Economics is based on the concept of SCARCITY.
• Interdependence each persons action is
  dependent upon anothers reaction

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Wants

• Items that you believe you need but can do
  without
• Examples cell phone, laptop, new car, desserts

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Needs

• Items needed to survive
• Examples Food, shelter, clothing, medicine

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• The following must happen to meet needs and wants
  of consumers
• Production
• Distribution
• Consumption

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4 Factors of Production

• Factors of Production define the resources used
  to produce goods
• Natural Resources unaltered gifts of nature.
• Example timber, air, minerals, ores
• Human Resources labor and physical efforts
  people use to create goods and services.
• Example Cashier at Krogers, Retail clerk at
  Wal-Mart

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• Capital Resources Buildings, tools and machines
  used to produce goods and services
• Example printing press at Daily News, fork
  lift, conveyor belt
• Entrepreneurship imagination, innovative
  thinking and management skill needed to start and
  operate a business

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Scarcity

• BASIC ECONOMIC PROBLEM
• Result of inability to satisfy all of everyones
  wants
• Example
• Gasoline
• Time

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• Define
• Incentives
• Disincentives
• Trade

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What are Markets?

• Markets exists due to Voluntary Exchange (store,
  ebay, flea market, school lunch, etc.)
• Voluntary ExchangeExchange made due to tastes
  and preferences

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• Market Economy uses voluntary exchange and
  markets as the primary means of organizing and
  coordinating production
• Good tangible (touch--car)
• Service intangible (work or labor performed-car
  wash)

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Opportunity Costs

• When wants are greater than funds
  availablescarcity occurs.
• When needs are greater than funds
  availablescarcity occurs.
• When making a choice you have a cost and a
  benefit. The economic terms for this are
  Opportunity Cost and Opportunity Benefit.

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• Opportunity Cost is the alternative you give up
  when making a choice.
• IT IS NOT AN ACTUAL COST!!
• Example You have a choice to work Friday night
  or go to the ballgame. You choose to work.
• Opp cost ballgame
• Opp ben paycheck

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• Opportunity Benefit is what you receive from a
  choice.
• We usually want our benefit to out weigh our
  costs.

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Trade-offs, Marginal C/B

• Trade off is a choice that involves giving up
  some of one thing to have more of another.
• Example If you sleep later then you get more
  rest, but less time to get ready.

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• Marginal Cost and Marginal Benefit are the
  economic terms used to weigh trade offs.
• Example AutoZone has limited shelf space. To
  stock all types of tires would take too much
  room. A trade off would be to display and stock
  just a few.

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• Marginal Cost decreased due to the lack of
  inventory
• Marginal Benefit more room to display other
  smaller items
• Profit Motive

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Names for U.S. Economy

• Free Market Economy
• Free Enterprise
• Market Economy
• Capitalism

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3 ?s Each Economy Must Ask

• Question 1
• What goods and services are to be produced and in
  what quantities?
• Who answers this in the U.S.?
• Consumers do!! Businesses react to consumers
  wants and needs
• Fast food, cell phones, SUVs,

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3 ?s Each Economy Must Ask

• Question 2
• How are these goods and services to be produced?
• Who answers this in the U.S.?
• Businesses do!!
• DQ building, new starbucks, combination AW KFC

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3 ?s Each Economy Must Ask

• Question 3
• Who receives and consumes these goods and
  services?
• Who answers this in the U.S.?
• Consumers Businesses
• McRib sandwich, clothing styles, nannies

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• Define
• Microeconomics
• Macroeconomics