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Economics
What resources were used to produce this car?
Resources used to produce car
How would you classify these?
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Steel
Rubber
Glass
Car designer
Engineer
Factory workers
Supervisors
Plastic
Leather
Thread
 Machines/industrial robots
 Electricity
 Factory building
 Land for factory
 Owner of company/CEO
 Other workers
 Wood for paneling
Economic Resources
 Factors of Production
 Natural Resources
Land, rain, forests, minerals, etc.
 Labor
work
 Capital
Capital goods (tools, machinery, and
buildings)
 Entrepreneur
Individuals who start a new business
Economic Choices
 Economics
 The study of how we make
decisions in a world where
resources are limited.
 Need
 Things we need for survival.
 Want
 Things we would like to have
 Scarcity
 Fundamental economic
problem.
 We don’t have enough
resources
 The Economic Questions
 What to produce?
 How to produce?
 For whom to produce?
Being an Economically Smart Citizen
 You must stay informed.  Understanding your
 Incentives: rewards
offered to try to
persuade people to take
certain economic
actions.
Examples???
role:
 Market Economy: Type of
economy US has.
It is participatory
 Capitalism: Citizens own
most of the means of
production.
 Free Enterprise:
businesses compete for
profit with a minimum of
govt interference.
Features of Capitalism
 Capitalism: an economic
system in which private
citizens own and use the
factors of production to make
a profit.
 Free Enterprise: an economy
in which competition is
allowed to flourish with a
minimum of gov’t
interference
 Consumer Sovereignty: the
consumer is the ruler of the market
 Private Property Rights: free to
own and use our own property
 Competition: struggle b/t buyers
and sellers to get the best products
at the lowest prices
 Profit: money left over after all
costs of productions have been
paid.
 Profit Motive: driving force behind
free enterprise.
 Voluntary Exchange: the act of
buyers and sellers freely and
willingly engaging in market
transactions.
4 factors of Productions Posters
 How does the entrepreneur make decisions about
how much of a resource to use to make a product?
 Which factor in your poster is the most important &
why?
 Which factors are the least important to production?
 Which factors have the cheapest cost toward your
production? Why?
 The most expensive? Why?
Circular Flow of Economic Activity
 Market: location that allows buyers and sellers to exchange
 Factor Markets: where productive resources are bought and
sold
 Product Markets: where producers offer goods and services for
sale.
Circular Flow Model
Basic Economic Decisions
 Which goods & services should be produced and in what
amounts?
 How should goods & services be produced?
 Who will get the goods & services that are produced?
 Quantity: amount to be produced
 Ex: farmer’s land, seeds, crops, labor, machinery
 Technology  revolutionized production process
Activity!
 Partner up with someone near you.
 Ask each other the following questions and record your answers:
 Suppose you have just bought 100 acres of land, what is the first economic
question you should ask yourself?
 Would you plant all or any of the acreage? One crop or more than one?
 Will you use organic methods or conventional fertilizers & pesticides?
 Will you do all the work yourself or hire help?
 Will you rely more on workers or machinery?
 Will you buy the farm machinery or rent
 Will you manage the farm yourself or hire a business manager?
Trade-offs
 Trade-offs
 Exchanging one thing for the
use of another
 Opportunity Cost
 What you cannot buy or do
when you choose to do or buy
one thing rather than another.
 Examples:
 Costs
 Fixed Costs: expenses that are
the same no matter how much
is produced.
Example:
 Variable Costs: expense that
change with the number
produced.
Example:
 Marginal Costs: extra cost of
producing one additional unit.
 Marginal benefit: additional
benefit associated with an
action.
Cost Benefit Analysis
 Economic model used to compare marginal
costs and marginal benefits
 You want to choose an action when the
benefits are greater than the cost.
The Economy and You 
 Consumer Rights and
Responsibilities
 Consumerism: movement to
educate buyers
 Laws that protect consumers
Examples:
 Warranty: a promise made by a
manufacturer or seller to repair
or replace a product if it is
faulty.
Your Role as a Consumer
 Disposable Income: money
after taxes
 Discretionary Income: money
after paying bills.
 What are your goals???
 Saving: money set aside for
later use
 Interest: payment when you
lend your money.
Gross Domestic Product (GDP)
 GDP: measure of the size
 Standard of Living:
of the economy.
 Total dollar value of all FINAL
goods and services
 Does not count intermediate
goods or used goods
 Expressed in terms of money
 Increase in GDP-economy is
expanding
 Decrease in GDP-economy is
declining
 Quality of life based on the
possession of necessities and
luxuries that make life easier.
 Does not measure society’s
overall health of the
economy.
Productivity and Growth
 Productivity: the measure of the amount of output
produced by a given amount of input.
 Specialization: Specialize in one good/service
 Division of Labor: dividing the tasks of making a
product.
 Economic Interdependence: depending on others for
the things we can’t provide ourselves.