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Chapter 1 The Economic Problem

Chapter 1 The Economic Problem. These slides supplement the textbook, but should not replace reading the textbook. What is the Economic Problem?. Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?.

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Chapter 1 The Economic Problem

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  1. Chapter 1The Economic Problem These slides supplement the textbook, but should not replace reading the textbook

  2. What is theEconomic Problem? Because we live in a world of scarce resources, but people have unlimited wants and needs, how do we meet their needs in this world of scarcity?

  3. What is a good? A tangible item that is used to satisfy wants

  4. What is a service? An intangible activity that is used to satisfy wants

  5. What is afree good or service? There is enough of a good or service to go around to everyone who wants it for free

  6. What is a Scarce Good or Service? There is not enough of a good or service to go around to everyone who wants it for free

  7. What is a resource? Something that is used to produce goods and services

  8. Who gets when a good is scarce? Consumers who have the money and want it the most

  9. What is a market? A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms

  10. How do we solve the allocation problem in a free market? Buyers and sellers compete in the market

  11. What assumption do we make concerning the market? Economists only consider market transactions.

  12. Who gets when a good is scarce? Consumers who have the money and want it the most

  13. Who wasAdam Smith? He wrote the Wealth of Nations in 1776 – known as the father of modern day economics.

  14. According to Adam Smith, what is the invisible hand? Self interest will guide the economy to produce what we want and offer us reasonable prices

  15. What was the main idea of the Wealth of Nations by Adam Smith 1776? Everyone would benefit from less government and free trade

  16. Is Self Interest a greedy concept? In a free market you get what you want by helping other people get what they want.

  17. What is thePrice Mechanism? Prices: • Convey information • Give incentives • Enables producers the financial capital to satisfy consumers wants and needs.

  18. What assumption do economists always make? When price changes nothing else changes.

  19. What isNormative Economics? Opinions or value judgments are made

  20. What isPositive Economics? Explains cause and effect.

  21. What are 2 common pitfalls to avoid? • Correlation with causation. • Fallacy of composition.

  22. What are the factors of production (resources)? • Land • Labor • Capital • Entrepreneurship

  23. What is land? Plots of ground and other natural resources used to produce goods and services

  24. What islabor? The physical and mental efforts of humans used to produce goods and services

  25. What is capital? Buildings, equipment, and human skills used to produce goods and services

  26. What is human capital? The skills used to work with capital

  27. What does money allow you to do? Make choices

  28. Characteristics of Millionaires • Live below means. • Begin earning and learning early in life. • Live simple lives. • Little help from parents. • Self employed and offer products to people with money.

  29. What are characteristics of Entrepreneurs? • They have a dream • overcome obstacles • delay gratification • take risks • strive to be unimportant • understand the process of duplication >

  30. Why can the entrepreneur have more free time, make more money, and have more security than an employee? A business owner has learned the lesson of duplication

  31. How can you duplicate yourself? • employees • rental property • savings in a bank • owning shares of stock

  32. Why is Duplication the flip side of debt? Life is either an adding to or a taking away, growth is adding to, not growing is taking away

  33. What are two basic laws of entrepreneurship? • What ever you have you will be given more, and what you do not have will be taken away • Whatever you give away you keep and whatever you keep you lose

  34. What does the term “Equilibrium” mean? A tendency toward

  35. What is the Austrian view of equilibrium? Austrians believe that a free market will seek full employment

  36. What is the Keynesian view of equilibrium? The economy could tend toward a less than full employment equilbium

  37. What is the Austrian view of growth? Sustainable growth depends on savings, exports, and investments

  38. What is the Keynesian view of growth? • Demand management • Large public sector • Wealth redistribution • Minimum wage laws • National debt

  39. What about planning? Austrians have a negative view toward planning – Keynesians embrace planning policies

  40. What is the“rule of law”? The willingness of a people to submit themselves to the law; there is a respect and adherence to the law 47

  41. What is the“rule of man”? The practice of putting oneself above the law when one has the power to do so 48

  42. END

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