Burning Question #1
In 2-4 sentences tell me what is more
valuable to you money or time? Why?
What is Economics?
Economics- the study of how individuals, families,
businesses and societies use their limited resources to
fulfill their unlimited wants.
Two Parts
1. Macroeconomics- deals with the economy as a
whole and decision making by large units such as
governments. (All the trees in the forest)
2. Microeconomics- deals with behavior and decision
making by small units such as individuals and firms. (A
specific tree in the forest)
Everyone Must Choose
Economics- the study of how individuals, families,
businesses and societies use their limited
resources to fulfill their unlimited wants.
So What’s The CostTime, Money???
Opportunity Cost- The value of the next best
alternative that had to be given up to do the action
that was chosen.
Why Choose?
Wants vs Needs
Scarcity- people do not and cannot have enough income or
time to fulfill their every want.
Trade-offs- Exchanging one thing for another.
“I wanted a iPad3, however elected for the
Kindle Fire after seeing the price.”
“I choose to go to the movies rather than study
for
my economics exam.”
“I choose to eat at home rather than eat out.”
Check for Understanding
___________ = the study of how individuals, families,
businesses and societies use their limited resources to
fulfill their unlimited wants.
___________ = deals with behavior and decision making by
small units such as individuals and firms.
___________ = people do not and cannot have enough
income or time to fulfill their every want.
___________ = The value of the next best alternative that
had to be given up to do the action that was chosen.
Scarce Resources Influences
Production
5 factors of production
1. Land- Refers to natural resources that exist
without human intervention.
2. Labor- The work people do to produce goods &
services is a resource.
-Good= tangible items people can buy
(medicine, clothing, and computers)
-Service= activities done for a fee.
(maids, cooks, hairstylists etc…)
5 factors of production
3. Capital- Manufactured goods used to make other
goods. Buildings, trucks, factories etc…
-Increases productivity
*PHYSICAL & HUMAN
4.Entrepreneurial Talent- Usefulness of individuals to
START new facilities and BUILD new products and
processes and IMPROVE management techniques.
(involves a willingness to take risks in order to reap profits)
5 factors of production
5. Technology- Includes the use of land, labor
or Capital to produce goods & services more
efficiently.
Matching???
____ Includes the use of land, labor or
Capital to produce goods & services
more efficiently.
____ Manufactured goods used to make
other goods. Buildings, trucks,
factories etc…
____ Refers to natural resources that exist
without human intervention.
____ Usefulness of individuals to start
new facilities and build new products
and processes and improve
management techniques.
____ The work people do to produce
goods & services is a resource.
A- Land
B- Labor
C- Capital
D- Entrepreneurial Talent
E- Technology
How Did You Fare?
E___ Includes the use of land, labor or
Capital to produce goods &
services more efficiently.
C___ Manufactured goods used to
make other goods. Buildings,
trucks, factories etc…
A___ Refers to natural resources that
exist without human intervention.
E___ Usefulness of individuals to start
new facilities and build new
products and processes and
improve management techniques.
B___ The work people do to produce
goods & services is a resource.
A- Land
B- Labor
C- Capital
D- Entrepreneurial Talent
E- Technology
Win Lose or Draw
5 Factors of Production
“FOP” and “PPC”
Take out your books and turn to page 10.
We will be reading aloud FOP “effect on income
and wealth.”
Take out your books and turn to page 17.
We will be reading aloud “production
possibilities curves”
Textbook page 18
Answer question 4 on page 19
The 3 Basic Economic Questions
All economic systems that have ever existed or will
ever exist have to answer some basic questions.
Let's explore the questions and some answers.
The 3 Essential Economic Questions
1 - What goods and services will be produced?
2 - How will the goods and services be produced?
3 – Who will get the goods and services?
15
Basic Economic Questions
Throughout history different countries have used different
organizing methods to answer the basic economic questions.
Focusing on the market system…
Some of the main characteristics of a market system are
Private property
Freedom of enterprise
and choice
Self-interest
Competition
markets and prices
Tech and capital
Specialization
Use of money
of resources
Active, but limited, gov
16
1) What will be produced?
The answer to the first question is that we let the supply and
demand of the market determine what and how much to
produce. Goods that consumers are both willing and able to
buy, and producers are willing and able to make, get made
in the amount that both working together see fit.
Note consumers “vote” for goods to be made with their
dollars and the goods are likely to be made if firms can make
profit.
17
2) How?
The answer to the second question is producers will use
the least cost combination of inputs to produce a given
level of output. The reason for this is twofold.
1. First, by using the least cost methods more profit will
be earned by the producer. Producers certainly like to
make profit.
2. But, the second reason is that if a producer does not
use least cost methods of production, when other
producers do, the high cost producer may not be able to
compete with the other low cost producers and will
eventually go out of business.
18
Resource use
Say there are three ways of making a good from a
technical point of view. Here we list the number of
units of each resource needed to make a good:
Resource
technique 1
technique 2
technique 3
Land
4
2
1
Labor
1
3
4
Capital
ET
1
1
1
1
2
19
Resource use
Next what each resource costs per unit and we can then see
how much it costs to make the units under each technique.
For now, let’s just say we look to the market to find what it
costs to get each unit of each resource. Here technique 2
would be used!
Resource
Land
technique 1
technique 2
technique 3
$2
4 ($8)
2 ($4)
1 ($2)
Labor $1
1 ($1)
3 ($3)
4 ($4)
Capital $3
Entrepreneurial $3
ability
Total Cost
1 ($3)
1 ($3)
1 ($3)
1 ($3)
2 ($6)
1 ($3)
$15
$13
$15
20
3) For Whom?
The answer to the third question is those
who are willing and able to pay for the items
made. We become able to pay by giving up
something that is valuable to us - labor or
other assets.
21
Economic Systems
3 Types of Economic Systems
1. Traditional Economy-
3rd World Countries
Ex-Aborigine peoples of Australia
2. Command Economy- Communist countries
Ex- Former Soviet Union or China
3. Market Economy- Developing nations
Ex- India
4. Mixed Market Economy- Developed nations
Ex- US & Great Brittan, Canada
23
Economic Systems
Types of Economic Systems
1. Traditional EconomyUsually tribal or family led. The leaders
make the rules and everyone else
follows & shares benefits.
24
Economic Systems
Types of Economic Systems
2. Command EconomyThe government controls all the factors
of production and dictates how the
nation answers the 3 economic
questions.
25
Economic Systems
Types of Economic Systems
3. Market EconomyThe people control the factors of
production and determine
independently how we answer the 3
economic questions.
Adam Smith- Pure Capitalism- Lazzie Faire
26
Economic Systems
Types of Economic Systems
4. Mixed- Market EconomyThe people control the factors of
production however the people & the
government determine how to answer
the 3 economic questions.
27
Traditional Economy
Pro- Easy to follow. Everyone has
a well defined role to follow
Leaders
People
Consumers
Con- Very difficult to change
Command Economy
Pro- Few people are left out.
Less poverty.
Government
Business
People
Consumers
Con- Ingenuity is stifled.
Lack of worker incentive.
Market Economy
“Pure Capitalism”
Pro- People have more say & own
factors of production
Business
Government
Con- Many will struggle
People
Consumers
Mixed Market Economy
Pro- People & the government have
more say & BOTH own factors of
production
Business
Government
People
Consumers
Con- Some people will struggle.
Economic Theory
The Big 3
1. Adam Smith
2. Karl Marx
3. John Maynard Keynes
Economic Theorist:
Adam Smith
is to
Market Economy
Wrote
“Wealth of Nations”
is the
Father of Modern Economics
Economic Theorist: Adam Smith
Courtesy of Wikipedia
Economic Theorist:
Karl Marx
is to
Command Economy
Wrote
“Communist Manifesto”
is the
Founder of Marxism
aka- communism
Economic Theorist: Karl Marx
Courtesy of Wikipedia
Economic Theorist:
Keynes
is to
Mixed Market Economy
is to
End of Great Depression
is to
Father of Modern Economics
Economic Theorist: Keynes
Courtesy of Wikipedia