Basic Economic Concepts Economics Scarcity Resources are Limited

Basic Economic Concepts

Economics � Scarcity � Resources are Limited (Money, Time, “Stuff”) � Wants are Unlimited (We want everything!) � Economics is the study of how we allocate or distribute those scarce resources.

Factors of Production � These are the 4 types of “Resources” � Land � Includes timber, water, minerals, and anything that comes from the land � Labor � The effort of workers � Capital � Machinery, buildings, tools, and anything used to make your product � Entrepreneurship � Risk taking, innovation, and the organization of resources for production

Trade-Offs � Scarcity forces us to make a choice. � Costs vs. Benefits � Is � We the cost worth what I get out of it? are then forced to make a Trade-off. � We �A have to trade something to get something else. Trade-off is any choice where one resource is traded for another.

Opportunity Cost � Every decision has a cost, if you do one thing, you can’t do another thing. There is a cost to your opportunity. �Opportunity Cost is the value of the next best option you had available. � Scenario: You have tickets to the World Series to see the Atlanta Braves play the Detroit Tigers. The next day your friend tells you he got front row tickets to your favorite artist who is coming to Atlanta. They are happening at the same time…you have to choose! � Opportunity Cost � The value of what you had to give up. � Cost is much more than the $ attached to that item.

Law of Economy � Basic � If law derived from human actions there are 2 things that are equally satisfying…. people will choose the cheapest option. � If there are 2 things that cost the same…. people will choose the one which gives greater satisfaction.

Economic Assumptions � Individuals act to make themselves better off, or “maximize their utility” � Do you derive happiness from getting a typhoid shot, or paying taxes? � Maximizing � Americans utility is NOT acting selfishly. in 2000 gave over $200 Billion to charitable organizations.

Micro vs. Macro -- Economics � Just like other fields, Economics is broken down into sub-groups � Microeconomics � Focuses on the choices made by individuals, households, and firms – the smaller part that makes up the Economy � Macroeconomics � Focuses on the Economy as a whole, its ups and downs, and how governments can affect the Economy.