Economics Unit I:Economics Unit I:Intro To EconomicsIntro To EconomicsPart 1 – Basic Economic ConceptsPart 1 – Basic Economic Concepts

What is Economics?What is Economics?

The Study of how we make The Study of how we make decisions in a world in which decisions in a world in which resources are limitedresources are limited

What is the difference What is the difference between Microeconomics between Microeconomics and Macroeconomics?and Macroeconomics?

MicroeconomicsMicroeconomics

looks at the small picture, looks at the looks at the small picture, looks at the decision making of individuals and decision making of individuals and small businessessmall businesses

MacroeconomicsMacroeconomics

looks at decision making by societies, looks at decision making by societies, industries and governmentsindustries and governments

What is an economic What is an economic system?system?

A way a group of people produce the A way a group of people produce the things they want and needthings they want and need

What is a need?What is a need?

Something someone Something someone has has to have to to have to livelive

What is a want?What is a want?

Something someone would like to Something someone would like to have; a luxuryhave; a luxury

What does scarcity refer What does scarcity refer to?to?

Not having enough resources Not having enough resources to produce all the things we to produce all the things we would like to havewould like to have

What is the difference What is the difference between scarcity and between scarcity and shortage?shortage? Scarcity means limited; Scarcity means limited;

shortage means in short shortage means in short supplysupply

Why is economics called the Why is economics called the “Science of Decision “Science of Decision making?”making?”

Because all resources are limited we Because all resources are limited we have to make decisions about how to have to make decisions about how to use them use them

What is a trade off?What is a trade off?

Exchanging one thing for another; Exchanging one thing for another; giving up something to get somethinggiving up something to get something

What is an opportunity What is an opportunity cost?cost?

‘‘Opportunity Lost’ – the value of the Opportunity Lost’ – the value of the next best alternative use of money or next best alternative use of money or time when a decision is madetime when a decision is made

What is meant by the What is meant by the factors of production?factors of production?

The resources necessary to produce The resources necessary to produce goods and servicesgoods and services

The Four Factors of The Four Factors of ProductionProduction

Land Land Labor Labor Capital Capital Entrepreneur Entrepreneur

LandLand

natural resources; unaltered by mannatural resources; unaltered by man

LaborLabor

human resources; mental and human resources; mental and physical workphysical work

CapitalCapital

manufactured tools used to make manufactured tools used to make other goodsother goods

The EntrepreneurThe Entrepreneur

the organizer, risk taker; person who the organizer, risk taker; person who starts own business, inventsstarts own business, invents

Four Basic Economic Four Basic Economic QuestionsQuestions

What to produce?What to produce? How to produce?How to produce? For whom to produce?For whom to produce?

What influences how What influences how we use our we use our resources?resources?

Marginal BenefitsMarginal Benefits

How much additional satisfaction we How much additional satisfaction we get when one more unit is producedget when one more unit is produced

Marginal CostMarginal Cost

The additional cost of producing one The additional cost of producing one more unitmore unit

Cost-Benefit AnalysisCost-Benefit Analysis

Comparing the marginal benefits to Comparing the marginal benefits to the marginal costs of a decision the marginal costs of a decision