Chapter 1:What is Economics?
"Economics is all about making choices."
Vocabulary
Wants
desires
Utility
has value; provides satisfaction
Resources
used to produce goods and services
Goods
tangible products
Services
intangible products
Consumers
use goods and services
Scarcity
unlimited wants and limited resources
Value
both scarce and has utility
Opportunity cost the cost of the "next best option"
The reason for economics:
"You Can't Always Get What You Want"
Scarcity => Choices => Opportunity Costs
Economics is the study of people making choices trying to satisfy
their wants in a world of scarcity.
TINSTAAFL
Economies answer three questions:
What?
·
What goods and services?
·
What quantity of goods and services?
How?
·
How will goods and services be produced?
Who or For Whom?
·
Who produces which goods and services?
·
Who receives goods and services?
Factors of Production aka Resources
Land (natural
resources)
Labor (human
resources)
Capital (tools
and equipment; used for production of other goods and services)
Financial Capital is used to buy tools and equipment
Entrepreneurship
(creative resources)
Four Key Elements to Economics:
Description
Analysis
Explanation
Prediction
The Circular Flow Model
Productivity
Economic growth
Productivity
Division
of Labor
Specialization
Economic
Interdependence
Oh, The Choices We Make
Trade Offs
Costs and
Benefits
Unintended
Effects (Externalities)
Opportunity
Costs
Production
Possibilities
Click here for the problem solving assignment: Problem
1
Chapter 2: Free Enterprise (Economic Systems)
Comparison of Command and Market Economies
Command Market
What? Government Consumer
How? Government Consumer
Who? Government Consumer
Examples
Cuba,
former USSR,
North Korea, China
U.S., Canada, Japan, South Korea
Advantages
Drastic change possible
Little uncertainty
Basic needs met
Gradual adjustments possible
Individual freedom
Limited government interference
Decentralized decision making
Large variety of goods/ services
High consumer satisfaction
Disadvantages
Poor customer satisfaction Weak
link between work/reward Large
bureaucracy
Poor allocation of resources
Inflexible to minor forces
Little initiative and innovation
Basic needs unmet
Personal/business uncertainty
Public goods not produced
Poor fit for intangible values
(justice, education, health care),
Market failure possible
Goals of U.S. Economic System
1. Economic
Freedom
2.
Economic Efficiency
3.
Economic Equity
4.
Economic Security
5.
Full Employment
6.
Price Stability
7.
Economic Growth
Trade Offs Among Goals
Free Enterprise (Capitalism) Characteristics
Economic Freedom
Freedom to exchange:
Voluntary Exchange (both parties benefit)
Freedom to risk: Profit
Motive
Private Property
Right to own and exchange
property
Bill of Rights: "private
property [shall not] be taken for public use without
just compensation"
Price System
Allocates scarce resources
Declaration of Independence:
"trading with all parts of the world"
Competition
Between businesses for
labor and resources
Between businesses for
consumers
Between laborers for
jobs
Between consumers for
products and services
Leads to efficiency
U.S. Constitution: "no
tax or duty shall be laid on articles
exported from any State."
Entrepreneurship
Innovation provides choices
in production and in goods
Economic rewards encourage
entrepreneurship
Patents, copyrights,
trademarks protect intellectual rights
Primary Players
Entrepreneur
Consumer (sovereignty)
Government (protector, provider and consumer, regulator)
Click here for the problem solving activity: Problem
2
