ECONOMICS
INTRODUCTION
WHY SHOULD WE STUDY
ECONOMICS?
https://www.youtube.com/watch
?v=gTAMRERJgVY
WHAT IS ECONOMICS?
http://money.cnn.com/video/ne
ws/economy/2014/10/21/wethe-economy-cave-onomics.cnnmoney/
ECONOMICS
Economics:
the study of how people try to satisfy seemingly unlimited
and competing needs and wants through the careful use of
relatively scarce resources
Scarcity:
the condition that results from society not having enough
resources to produce all the things people would like to have
https://www.youtube.com/watch?v=DeYxn6MJxGQ
Need:
A basic requirement for survival
Want:
Something we would like to have but is not
necessary for survival
Our needs and wants are usually expressed in
terms of economic products
Economic products are goods that are:
1. Useful
2. Relatively scarce
3. Transferrable to others
•Economic products fall into two groups:
1. Goods (tangible)
2. Services (intangible)
GOODS
Goods:
Useful tangible item that can be used to satisfy
a need or want
Goods are then divided into categories,
depending on there use.
Some goods can belong to two groups at the
same time
Goods fall into four categories:
1. Durable good:
 Item that lasts three years or longer
 Ex: Machinery, car, refrigerator, etc…
2. Nondurable good:
 Item that lasts less than three years when
used on a regular basis
 Ex: paper, most clothing items, food
3. Consumer good:
 Intended for use by individuals
 Ex: shoes, shirts, cars, etc…
4. Capital Good:
 Tools, or machinery, or equipment that is
used by businesses to produce other
products
SERVICES
Services:
Work that is performed for others
Ex:
haircuts, home repairs, entertainment, etc.
Work that doctors, lawyers, and teachers
perform
Value:
Worth that can be expressed in dollars and
cents
For something to have value, it must also have
utility
Paradox of value:
The situation in which some necessities have low
monetary value while some non-necessities have
a much higher value
https://www.youtube.com/watch?v=e7S8jWh6
AEs
Utility:
The capacity to be useful and provide
satisfaction
Wealth:
Accumulation of products that are:
1. Tangible
2. Scarce
3. Have utility
4. Transferable
Everything we do has a cost
– Even when it seems as if we are getting
something “for free”
Do you really get a free meal when you use a
buy one, get one free” coupon?
The more a company gives away “free”, the
more it has to raise the prices for other items it
sells
Most things in life are not free, because someone
has to pay for producing them in the first place
Economist use the term TINSTAAFL to describe
this concept
“There is no such thing as a free lunch”
Three basic questions every society faces:
1. WHAT to produce?
 Society must choose based on its needs
2. HOW to produce?
 Society must choose based on its resources
3. FOR WHOM to produce?
 Society must choose based on its
population and other available markets
Economics is also a social science because it
deals with the behavior of people as they deal
with the issues of needs and wants, versus scarce
resources
The four key elements are:
1. Description
 Describes economic activity
Gross Domestic Product (GDP)
Monetary value of all final goods and services,
and structures produced, within a country’s
borders in a 12-month period.
GDP is the most comprehensive measure of a
country’s wealth
https://www.youtube.com/watch?v=iAio7vk6XU
4
2. Analysis:
Economics analyzes the economic activity it
describes
1. Why prices go up or down
2. Or how taxes affect savings and how
things happen
3. Explanation:
Refers to how economists communicate
knowledge of the economy and its activities to
others
4. Prediction:
Refers to how past economic activities can
advise us of potential future economic activity
SECTION 1.2
WHAT IS THIS THE LOGO FOR?
MCDONALDS
Why do you know this logo?
Why do you think McDonalds is so successful?
What does McDonalds need to have to run its restaurants?
What would happen to McDonalds if these went away?
https://www.youtube.com/watch?v=AX2uz2XYkbo
FAMOUS FORMER EMPLOYEES
Rachel McAdams
Star jones
Jeff Bezos (Amazon)
Keenan Wayans
Sharon Stone
Shania Twain
Jay Leno
DL Hughley
Seal
James Franco
Carl Lewis
Lin-Manuel Miranda
Pink
FACTORS OF PRODUCTION
Factors of production – resources
required to produce the things we like to
have
1. Land – natural resources not created by
humans
2. Capital – tools, equipment, machinery,
and factories used in production of goods
and services
3. Labor
 people’s efforts, abilities and skills
4. Entrepreneurs
 Risk takers in search of profits who do
something with existing resources
 People who start new businesses or bring
new products to market
PRODUCTION POSSIBILITIES CURVE
Production possibilities curve
Everything we make requires the four factors of
production
Economists use it to illustrate all possible
combinations of goods and services an economy
can produce
PRODUCTION POSSIBILITIES CURVE
OPPORTUNITY COST
Opportunity cost
Cost of the next best alternative use of resources
when one choice is made rather than another
OPPORTUNITY COST
TRADE-OFFS
Trade-offs
Alternative choices that are given up in favor of
the choice we select
SECTION 1.3
Economic growth
When a nation’s total output of goods and
services increases over time
Important for two reasons:
1. Because of scarcity, everyone wants more
than what they currently have
2. As populations grow, more people will want
the goods and services
Economic growth requires risk and sacrifices
Productivity
Measure of the amount of goods and services
produced with a given amount of resources in a
specific period of time
Human capital - Investments in people
Individuals can invest in education
Employers can invest in training and other
programs to improve skills
Government can invest by providing financial
aid for education and health care costs
Division of labor and specialization can improve
productivity
Division of labor
Division of work into a number of separate
tasks to be performed by different workers
Increases efficiency by ensuring that workers
become good at specific tasks
Specialization
Assignment of tasks to the workers, factories,
regions, or nations that that can perform them
most efficiently
Great example: Ford’s assembly line production
Cut the time to assembly a car from 1.5 days to
about 2.5 hours
Reduced the price of a new car by 50%
CIRCULAR FLOW OF ECONOMIC ACTIVITY
The key feature of the circle flow is the market
Markets:
Location or other mechanisms that allows buyers
and sellers to exchange a specific product
Local, regional, national, global, and
cyberspace
Factor Markets:
Where all of the factors of production are
bought and sold
Where people earn their incomes
Center on the four factors of production
Product Markets:
Where people spend their income
Center on goods and services
Individuals and businesses are connected by
markets