INTRODUCTION TO ECONOMICS INTRODUCTION TO ECONOMICS What is

INTRODUCTION TO ECONOMICS

INTRODUCTION TO ECONOMICS What is economics and why should we study it? � Economics is the study of how individuals and societies make choices about ways to use scarce resources to fulfill their wants. Economics divisions. is broken down into two � Microeconomics Deals with decision-making by small units such as individuals and firms. � Macroeconomics Deals with decision-making by large units such as governments and the economy as a whole.

INTRODUCTION TO ECONOMICS What are the scarce resources? ? ? Factors of Production � Land natural resources, surface land, and water. � Labor human effort directed towards producing goods and services. � Capital the buildings, equipment, and human skill used to produce goods and services. � Entrepreneurial Ability managerial and organizational skills needed to start a firm, combined with the willingness to take risks.

INTRODUCTION TO ECONOMICS We all have them… wants and needs �Need Anything that is essential to survival. �Want The extras or luxuries of life.

INTRODUCTION TO ECONOMICS Needs Food Water Shelter Clothing Wants Pizza, cheeseburger Coke, Sweet tea 5 bedroom home Aeropostale, Old Navy

INTRODUCTION TO ECONOMICS We all have 4 basic needs, how many wants do we have? ? Why can’t we have everything we want? We all have 2 basic limited resources that prevent us from having everything: � Time � Money

INTRODUCTION TO ECONOMICS Scarcity � The condition of not being able to have all of the goods and services one wants. � Scarcity always exist because wants will always exceed resources.

INTRODUCTION TO ECONOMICS What about the temporary lack of resources? Shortage �A temporary situation in which goods and services are unavailable. Hurricanes War Freezing temperatures Shortage vs. Scarcity � Shortages are temporary, scarcity always exist.

INTRODUCTION TO ECONOMICS Since our resources are limited and we have so many alternatives, we have to consider our costs when we make choices. �Opportunity Cost The value of the best alternative forgone when an item or activity is chosen. �Trade-off Sacrificing one good or service to purchase or produce another.

INTRODUCTION TO ECONOMICS What are goods and services? Goods �A tangible item used to satisfy human wants. Services � An activity used to satisfy human wants.

HOW DO COUNTRIES/FIRMS DECIDE WHAT THEY NEED TO PRODUCE? Productions possibilities frontier �Graph showing the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. �Classic example is Guns or butter.

GUNS AND BUTTER • Either government can use resources to produce military goods or consumer goods. Government must make a trade-off.

Unattainable Inefficient use of resources

INTRODUCTION TO ECONOMICS What does it mean on the news when they say the economy is bad? �Economy The production and distribution of goods and services in a society.

INTRODUCTION TO ECONOMICS Economist �Someone who researches and collects data to build models to show the world works. Economic �A Model simplified representation that helps explain and predict economic behavior in the real world.