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Economics….the basics Why does scarcity force economic decisions resulting in trade-off’s & opportunity costs? Economic Theory • Economics is a theoretical discipline (based on unproven, • • • • but testable assumptions). Economists make assumptions about the way producers & consumers act & react to various incentives. Economics touches on many other disciplines: Psychology, sociology, history, government, & geography. Most news events (most conflicts) are economic in nature. BP Oil Spill, Ga Schools (Budgets), World Cup, etc. Course Overview Econ has five domains (Areas of Study) Fundamentals - Resources, Scarcity, rational Decision making, Trade-offs, costs & benefits, economic systems, & markets. Domain – Microeconomics Understanding the factors that affect individual markets- how producers & consumers interact & react. Macroeconomics Understanding entire economic systems; measuring economic health; Economic problems & how policy makers address them? International Economics Analyze: why we trade? The Cost & Benefits of trade? What should we produce & what should we buy? Barriers vs. Free trade? Comparing currencies? Personal Finance You & the Economy. Building wealth? Saving & Investing? Costs & Benefits of Borrowing (Debt)? Budgeting? Insurance? Economic Actors Consumers – make economic decisions about needs & wants. * What goods & services to buy? * How to allocate limited resources? Producers – make decisions about what goods & services to provide to consumers. • • Goods Physical objects that can be purchased (Examples:_________) SERVICES- actions or activities that are performed for a fee (Examples:__________) Needs vs. Wants Needs - Resources that are necessary for survival. Examples _________________ Wants - items we desire but are not essential for survival. Examples_______ Some KEY Ideas to understand Costs – things you give up when you make a decision (not the price). Benefits – things you gain when you make a decision. (ex. What are the costs & benefits of getting a college education?) Market – the free exchange of goods & services (Not necessarily a place, but the meeting of those who want to buy with those who want to sell) . Personal Finance Rational Financial Decision Making - weighing the costs & benefits of spending & saving decisions. - So, rational decisions are decisions in which the benefits outweigh the costs. Financial Planning - Setting long & short term goals * Short Term – saving for clothes, weekend * Long term – prom, spring break college, retirement, etc. Incentives Anything that helps an economic actor make a decision Can be positive or negative Economic Theory • Economics is a theoretical discipline (based on unproven, but testable ideas). • Economists make assumptions about the way producers & consumers act & react to various incentives. • Economics touches on many other disciplines: Psychology, sociology, history, government, & geography. • Most news events (most conflicts) are economic in nature. Microeconomics Studying the economic behavior & decisions of small units: families, high schools students, businesses. Example - Chick-fil-a or McDonalds? Micro decisions - How to allocate weekend spending money? Macroeconomics Behavior of entire economies (large units) like those of entire countries, state, or region. Study the impact of illegal immigration on the U.S. economy. Macro Decisions - made by government policy makers: Ex- Provide tax rebates to citizens to jump start the economy.