10/22/2014crc economics1. 10/22/2014crc economics2 what did we talk about last time? essential...

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What did we talk about last time?

Essential information Who Am I? Course Information Who Are You?

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What do we study this time?

Chapter 1Ten Principles of Economics

Introduction: Basic Economic Concepts• Goods and services (G&S)• Resources• Society’s basic problem• Basic questions in Economics

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Do you know …

what stuff that we want in life? what we need to produce stuff? how stuff are produced? a society’s basic problem and its

solution? the basic questions answered by

Economics?

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1. What stuff do we want in life?

In life, we want stuff, that economists call collectivelygoods and services (G&S).

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a. Goods Goods, or commodities, are tangible stuff,

including durable and non-durable goods.

Durable goodsUsed for more than 1 year

Non-durable goodsUsed for less than 1 year

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b. Services Services are intangible stuff, such as …

Medical care Legal services Education

Music Sports Movies

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2. What do we need to produce G&S?

a. Company founderor entrepreneur

(a resource)

b. Factories/toolsor physical capital

(a resource)

d. Worker skillsor human capital

(a resource)

f. Know-howor technology

e. Materialsor natural resources

c. Workers or labor

(a resource)

To produce a car, we need …

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2. What do we need to produce G&S?

Resources (also calledinputs or factors of production)

a. Company founder Entrepreneur Ent

f. Know-how (Technology/Technological knowledge) A

c. Workers Labor L

d. Worker skills Human capital H

e. Materials Natural resources N

b. Factories / tools Physical capital K

Notation

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a. Entrepreneurs (Ent) Risk takers who organize the production of G&S

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b. Physical capital (K)

The stock of equipment and structures, e.g. factories, tools etc., used to produce G&S

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c. Labor (L)

People’s efforts and time

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d. Human capital (H) The knowledge and skills acquired through

education, training, and experience

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e. Natural resources (N)

Inputs provided by nature, e.g. land, water, trees, oil, etc.

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f. Technology / Technological Knowledge (A)

Society’s understanding of the best ways to produce G&S

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3. How are G&S produced?

RReessoouurrcceess

OOuuttppuut t GG&&SS

TechnologTechnologyy

NN

LL

HH

KK

EntEnt

(Technologi(Technological cal

knowledge)knowledge)

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4. What is a society’s basic problem and its solution? Do we want a lot of G&S? Do we have a lot of resources?

Our wants of G&S are unlimite

d.

Our resource

s are limited.

Society’s basic problem is scarcity,

(We cannot have everything that we want.)

Yes.

No.

i.e. the limited nature of society’s resources.

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How do societies solve the scarcity problem?

By using the principles in Economics, which is the study of how society manages its scarce resources.

The economy is similar to a household. The word “Economy,” from

“oikonomos” (a Greek word), means “one who manages a household.”

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4. What are the basic questions answered by Economics?

Economics try to answer the following questions:

• Who will work to produce G&S?• What goods/services and how many of

them will be produced?• What resources should be used in the

production of G&S?• At what prices should the goods/services

be sold?

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Now you know …

what stuff that we want in life. what we need to produce stuff. how stuff are produced. the society’s basic problem and its

solution. the basic questions answered by

Economics.

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What did you study this time?

Chapter 1Ten Principles of Economics

Introduction: Basic Economic Concepts

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What will you study next time?

Chapter 1Ten Principles of Economics

How do people (as individuals) make decisions?

How do people interact? How does the economy as a whole

work?

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