Introduction to EconomicsIntroduction to Economics

Study Guide pages 1 & 2Study Guide pages 1 & 2

Definition of Definition of Economics…Economics…

Study of howStudy of howindividuals & society–with individuals & society–with unlimited wants & needsunlimited wants & needs

make choices (decisions) make choices (decisions) aboutabout

the use of limited resourcesthe use of limited resources

Micro vs. MacroMicro vs. Macro

The economy is a frogThe economy is a frog

Let’s go to bio for a momentLet’s go to bio for a moment

How do you study a frog?How do you study a frog?

DissectionDissection

How do you look a the small parts of How do you look a the small parts of the frog?the frog?

Understanding Understanding microeconomicsmicroeconomics

Through a Through a micromicroscopescope

It helps you look at It helps you look at small parts.small parts.

Microeconomics Microeconomics looks at small parts looks at small parts of the economy.of the economy.

1 company, 1 1 company, 1 industry, 1 personindustry, 1 person

MacroeconomicsMacroeconomics

Macro Macro is the study is the study of the entire frog.of the entire frog.

How do all the parts How do all the parts work together?work together?

Why does the frog Why does the frog jump?jump?

Quick quiz – Micro OR MacroQuick quiz – Micro OR Macro

Microsoft?Microsoft?

Savings plans of Savings plans of students?students?

GM, Ford, Chrysler?GM, Ford, Chrysler?

unemployment unemployment rate? rate?

micromicro

micromicro

micromicro

macromacro

What do Economists do?What do Economists do?

What do weathermen/women What do weathermen/women do?do?

predict / forecastpredict / forecast give facts / tempgive facts / temp show models / mapsshow models / maps give laws / cold front + warm air = give laws / cold front + warm air =

stormstorm interpret / dry summer leads to poor interpret / dry summer leads to poor

cropscrops

Economists do the same Economists do the same thingthing

models – used to generalizemodels – used to generalize predict – based on prior knowledgepredict – based on prior knowledge apply laws – high price, low demandapply laws – high price, low demand

Limited ResourcesLimited Resources We live in a world of We live in a world of scarcityscarcity almost anything you can think almost anything you can think

of has a limitof has a limit Why do we like money so much?Why do we like money so much? It is a relative statementIt is a relative statement

for example…for example…

Would you miss Would you miss $350,000???$350,000???

It is all about choicesIt is all about choices

Opportunity CostOpportunity Cost what you give up in order to what you give up in order to

get what you want.get what you want. It is always the NEXT BEST It is always the NEXT BEST

alternative.alternative.

What can we produce in our What can we produce in our nation?nation?

We have limited resources to make We have limited resources to make GUNS & BUTTERGUNS & BUTTER

It is decision making timeIt is decision making time

How will we make the choice?How will we make the choice?

Production PossibilitiesProduction Possibilities

GunsGuns

00

4040

8080

120120

160160

200200

ButterButter

200200

160160

120120

8080

4040

00

Production Possibilities Production Possibilities CurveCurve

What do people want and What do people want and need?need?

Goods and Services.Goods and Services. Some are ESSENTIAL to life.Some are ESSENTIAL to life. Others we can miss out on.Others we can miss out on. What is essential?What is essential?

Food, water, shelter, clothing – optionalFood, water, shelter, clothing – optional What is NOT essential?What is NOT essential?

Everything else.Everything else. We do not need our cell phones, iPods, etc.We do not need our cell phones, iPods, etc.

What is a good?What is a good?

A tangible itemA tangible item It has physical It has physical

characteristicscharacteristics Touch, smell, taste, Touch, smell, taste,

hear.hear. LOFTFC!!!!!!!!!!!!!!!!LOFTFC!!!!!!!!!!!!!!!!

!!!!!!!!!!!!!!

Categories of GoodsCategories of Goods Consumer GoodsConsumer Goods

Things we purchaseThings we purchase Capital (producer) GoodsCapital (producer) Goods

Things used by producers to make goods Things used by producers to make goods and services.and services.

Durable GoodsDurable Goods Goods that last 3 or more years. Goods that last 3 or more years.

Appliances.Appliances. Non-durable GoodsNon-durable Goods

Items that will not last. Food.Items that will not last. Food.

What is a service?What is a service?

An action An action performed by one performed by one person for another.person for another.

Why do we want or need goods Why do we want or need goods and services?and services?

To deal with the issue of scarcity.To deal with the issue of scarcity. To satisfy our wants and needs.To satisfy our wants and needs. These g & s have value.These g & s have value. In Economics, it is called:In Economics, it is called:

UtilityUtility The ability to provide usefulness or The ability to provide usefulness or Satisfaction.Satisfaction.

Mick Jagger - EconomistMick Jagger - Economist

Academically successful, he Academically successful, he attended attended DartfordDartford Grammar School Grammar School where he where he passed 3 passed 3 A-levelsA-levels, before , before entering the entering the London School of EconomicsLondon School of Economics on a on a scholarshipscholarship. He studied . He studied for a degree in accounting for a degree in accounting and finance, but attended for and finance, but attended for less than a year and did not less than a year and did not graduate, leaving to pursue graduate, leaving to pursue a musical career. School a musical career. School legend has it that Jagger was legend has it that Jagger was asked to leave the London asked to leave the London School of Economics after an School of Economics after an incident in which he rode a incident in which he rode a motorcycle inside the library. motorcycle inside the library.

Mick Jagger - EconomistMick Jagger - Economist

“I can’t get no“I can’t get no…satisfaction…satisfaction””

“You can’t alw“You can’t always get what yays get what you wantou want””

How do we get the goods and How do we get the goods and services?services?

They have to be produced.They have to be produced. Producers gather and arrange the Producers gather and arrange the

Factors of Production.Factors of Production. LandLand – natural resources – natural resources LaborLabor – work; human resource – work; human resource CapitalCapital – items used to produce others – items used to produce others EntrepreneurshipEntrepreneurship – skills used in – skills used in

making decisionsmaking decisions

Looking AheadLooking Ahead

What decisions have to be made by What decisions have to be made by societies to deal with scarcity?societies to deal with scarcity?

What questions should be asked by What questions should be asked by those who make decisions?those who make decisions?