What is Economics

1. What is Economics • The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems. • What “schools of thought” are you “familiar” with that could influence this usage of resources?

2. Smith believed that free trade and a self-regulating economy would result in social progress. He criticized tariffs and other limits on individual freedom in trade. • He preached that government need only preserve law and order, enforce justice, defend the nation, and provide for a few basic services that could not be met through the market. • His argument for a “hands off” government policy toward business, along with his analysis of economic forces, formed the basic ideas of economic liberalism.

3. Adam Smith • His book called “The Wealth of Nations” dealt with the basic problem of how social order and human progress can be possible in a society where individuals follow their own self-interests. • Smith argued that this individualism led to order and progress. • To make money, people produce things that other people are willing to buy. Buyers spend money for those things that they need or want most. When buyers and sellers meet in the market, if competition is allowed to work, a pattern develops that results in social harmony. • Smith said that all this would happen without any conscious control or direction, “as if by an invisible hand.”

4. Thomas Malthus • Wrote “Essay on the Principle of Population”. His main idea in this book is that population tends to increase more rapidly than food supplies. He believed that wars and disease would have to kill off the extra population, unless people limited the number of their children. • Based on Darwin’s theory of Natural Selection.

5. Robert Owen • He tried to prove as a businessman that it was good business to think of the employees' welfare. He set up the famous New Harmony community in Indiana in 1825. • There he attempted to create a utopia (perfect society). • Owen believed in equal opportunity for all and was opposed mere book learning. He believed children also could be taught "correct ideas" by surrounding them with good examples.

6. Scarcity • Refers to anything in which there is a limited supply…such as: • Time • Money • People • Resources

7. Resources • Broken down into 3 main areas: • Land: refers not only to our politically boundaries but also what lies within the country. • Labour: refers to the population • Capital: refers to manufactured items that are used to produce goods and services.

8. Water: A scarce resource. Pg 7

9. Direct/Opportunity Costs • Every decision has a cost. • Direct Costs are defined as the out of pocket expenses that are required to do something. • Opportunity Costs is the value of the best possible alternative that is given up. • Example: You have $10000 and you purchase a car…what are the direct and opportunity costs? • Total Cost is the sum of the direct and the opportunity costs.

10. Opportunity Costs • The cost of college attendance. Pg 10 • Do questions 1-4 on page 11.

11. Production-Possibility Graph • What the maximum amount that a society can produce with the resources that it has. • Consider a simple society…they can manufacture corn and spears.

13. All the data that is located between the origin and the line is all the total possible combinations that are possible for the society. • All the data that is “outside” the line are unobtainable with the given resources that are available. • What could the society do to improve their production.

14. Law of Diminishing Returns • States that when a “fixed” resource is combined with an increasing variable resource, the total output will eventually become smaller and smaller • Thomas Malthus pg 18-20…Q.1-4

15. Read Pages 20-22. Submit to me a one page position paper on what you think would be the best approach to resource ownership…free-market approach vs command approach. Be sure to include opportunity cost theory as well.