Chapter 1 • Economics – study of the choices that consumers and producers make. • Capitalism – United States Economic System. Laissez Faire – Free Enterprise – Private Property- • Adam Smith – the “Wealth of Nations”
Scarcity • The Fundamental Economic Problem • Unlimited needs and wants with limited resources = scarcity which leads to choices for producers.
4 factors of Production • Human Resources • Capital Resources • Natural Resources • Entrepreneurship
Goods and Services • Goods—tangible items • Services—not physical • *both require scarce resources to produce and satisfy human wants
Assignment 1. Define the following terms: Scarcity Productive resources Economics Human resources Labor Entrepreneur Natural resources Capital goods Good Services • 2. Go to page 9, 1.1 Assessment, answer • 1,4, and 6
3 Basic Economic Questions • What to Produce? • How to Produce? • For whom to Produce for?
Trade Offs and Opportunity Costs • Alternatives –giving up one thing for the use of another • The next best alternative • Example – what value does a person lose if they decide to do one thing versus the other
The Production Possibilities Frontier - PPC tanks sailboats
PPC continued … • Trade offs and opportunity costs • The costs of idle resources? • Economic growth • As a entrepreneur – you must decide which product is in more demand and concentrate your production efforts on the item in more demand by the public.
Forms of exchange • Barter - trade – ancient societies • Money – measure of value • Credit – borrowed money
Journal 2 • Is it likely you will become successful or even rich? Is this important to you? • What choices for your future might you make differently if you thought you had little chance of success? • How might you and the economy as a whole suffer as a result of your pessimism?
Chapter 22.1, 2.3 Economic Systems
Types of Economic studies Microeconomics Macroeconomics Focuses on the performance of the economy as a whole, especially the national economy. Fits all the pieces together looks at the big picture • Focuses on yours and others economic behaviors • Focuses on the factors that influence individual economic choices • i.e., the smaller picture • the individual pieces of the economic puzzle
Types of Economies 1. Traditional Economies • Based on custom and tradition • Products produced and distributed among the groups • Only items that are necessary are produced • Rarely used today
Command Economy • Government officials make decisions • Planned economies • Ancient system – not seen today
Market Economies • Individuals hold control and answer the three basic economic questions • Self-interest • System is set up to reward people – incentives exist
Mixed Economies • Authoritarian / Communism – government controls all factors of production • Example – U.S.S.R. • Capitalism – government involvement is limited • Example – U.S.A. • Democratic Socialism – government ownership is limited to key industries • Example - Canada
Five features of the U.S. Free Enterprise System • Free enterprise – an economic system in which business can be conducted freely with limited gov. involvement. • Private property – people have the right to own private property and enter into contracts. • Engage in economic competition! • Make decisions based on self-interest! • Participate in the economy with limited government involvement!
Quiz 1 • 1. What are the three economic questions? • 2. _______ focuses on the performances of the economy as a whole. • 3. _______ looks at the smaller pieces of the economy. • 4. _________ an economic system in which business can be conducted freely with limited gov. involvement. • 5. _________ the fundamental economic problem. • 6. _________ the study of choices consumers and produces make. • 7.__________ the American economic system. • 8. _________ economic belief that the government should leave the economy alone. • 9. __________ political party that believes in the above. • 10. _________wrote “Wealth of Nations”
Circular Flow Model Types of exchanges : Households and Government -households provide resources to the government for income -households pay taxes to the government for services Households and Businesses -households provide resources to businesses for income -households pay businesses for products
Circular Flow Model Cont. • Businesses and Government • -businesses provide products to the government for money • -businesses pay taxes to the government for service
Key terms : • Utility - usefulness of a product - The utility of a certain good can vary from person to person. • Self – sufficiency – when you can fulfill all your needs with no outside influence • Interdependence – when one area or region is affected because of the events and incidences that occurred in another region.
Key Terms cont. • Productivity – level of output that results from a given level of input • Efficiency – the use of the smallest amount of resources to produce the greatest amount of output • Division of labor – assigning a small number of tasks to each worker • Specialization – the focus on one activity
Absolute Advantage v. Law of comparative advantage • Absolute advantage • Being able to do something using fewer resources than other producers require. • No need to cooperate Not the best guide for deciding what to do. • Law of Comparative Advantage • The worker with the lower opportunity cost of producing a particular output should specialize in that output Specialization Occurs when individual workers focus on single tasks, enabling each one to be more efficient and productive
Specialization • Absolute advantage focuses on which of you uses the fewest resources • Comparative advantage focuses on what else those resources could have produced • That is, the opportunity cost of those resources • Indicates who should do what (specialize)
Specialization • Resources are allocated most efficiently across the country and around the world when production and trade conform to the law of comparative advantage
Specialization • Specialization • Based on comparative advantage • Did you make anything that are wearing? • Cotton Shirt • Farmer grows cotton, someone spun cotton to thread, someone wove thread into fabric, • Sewed fabric to shirt, store sold it
Division of Labor • Division of labor • Each worker specializes in a separate task • Allows the group to produce much more • 1. task assigned to ability and preference • 2. repetitive tasks makes perfection • 3. allows for new labor saving techniques
Homework Assignment • Chapter 1 and 2 Review economic terms • Write the word and definitions down • P. 29 and 57