Download Introduction to Economics

INTRODUCTION TO
ECONOMICS
INTRODUCTION TO ECONOMICS
 What
is economics and why should
we study it?

Economics is the study of how individuals and
societies make choices about ways to use
scarce resources to fulfill their wants.
 Economics
divisions.
is broken down into two
Microeconomics
 Deals with decision-making by small units
such as individuals and firms.
 Macroeconomics
 Deals with decision-making by large units
such as governments and the economy as a
whole.

INTRODUCTION TO ECONOMICS
 What
are the scarce resources???
 Factors of Production
Land
 natural resources, surface land, and water.
 Labor
 human effort directed towards producing
goods and services.
 Capital
 the buildings, equipment, and human skill
used to produce goods and services.
 Entrepreneurial Ability
 managerial and organizational skills needed
to start a firm, combined with the
willingness to take risks.

INTRODUCTION TO ECONOMICS
 We

Need


all have them… wants and needs
Anything that is essential to survival.
Want

The extras or luxuries of life.
INTRODUCTION TO ECONOMICS
Needs
Wants
Food
Water
Shelter
Clothing
Pizza, cheeseburger
Coke, Sweet tea
5 bedroom home
Aeropostale, Old Navy
INTRODUCTION TO ECONOMICS
We all have 4 basic needs, how many wants do
we have??
 Why can’t we have everything we want?
 We all have 2 basic limited resources that
prevent us from having everything:

Time
 Money

INTRODUCTION TO ECONOMICS

Scarcity
The condition of not being able to have all of the
goods and services one wants.
 Scarcity always exist because wants will always
exceed resources.

INTRODUCTION TO ECONOMICS
What about the temporary lack of resources?
 Shortage


A temporary situation in which goods and services
are unavailable.
Hurricanes
 War
 Freezing temperatures


Shortage vs. Scarcity

Shortages are temporary, scarcity always exist.
INTRODUCTION TO ECONOMICS

Since our resources are limited and we have so
many alternatives, we have to consider our costs
when we make choices.
 Opportunity
Cost
The value of the best alternative
forgone when an item or activity is
chosen.

 Trade-off
Sacrificing one good or service to
purchase or produce another.

INTRODUCTION TO ECONOMICS
What are goods and services?
 Goods



A tangible item used to satisfy human wants.
Services

An activity used to satisfy human wants.
HOW DO COUNTRIES/FIRMS DECIDE WHAT
THEY NEED TO PRODUCE?

Productions possibilities frontier
 Graph
showing the maximum
combinations of goods and services
that can be produced from a fixed
amount of resources in a given
period of time.
 Classic example is Guns or butter.
GUNS AND BUTTER
•
Either
government can
use resources to
produce military
goods or
consumer goods.
Government
must make a
trade-off.
Unattainable
Inefficient use of resources
INTRODUCTION TO ECONOMICS
 What
does it mean on the news when
they say the economy is bad?
 Economy
The production and distribution of
goods and services in a society.

INTRODUCTION TO ECONOMICS
Economist

Someone who researches and collects
data to build models to show how the
world works.
Economic

Model
A simplified representation that helps
explain and predict economic behavior
in the real world.