Basic Econ Concepts

What is Economics?Most people arent satisfied Constant competition w/ others The problem is that resources are scarce

Economics is the science of scarcityScarcity- when our wants are greater than our limited resourcesWe cant have everything we desire, so we must make choices Economists study choices

Ex: We choose between buying jeans or shoes Businesses choose how many people to hireGovernments choose how much to spend on welfareEconomics- The study of how people satisfy unlimited & competing wants with the use of scarce resources

Needs & WantsDealing w/ scarcity requires differentiating between needs & wantsNeeds- basic requirements for survival (food, clothing, shelter, etc)Want- way of expressing a needYou NEED food, you WANT???You NEED clothes, you WANT???

Since resources are scarce, everything we do has a costNothing is freeCut costs in one area, means raised cost in anotherBuy 2, get 1 freeMhmmmmm

3 Econ QuestionsBecause of scarcity, we have to make wise decisionsWhat, How, & For Whom???

What to produce?Focus on military equipment or foodOil or Housing?Societies cant have everything people want, so they must decide WHAT to produce

HOW to produce?Mass production w/ lots of equipment & few workers?Less equipment & more workers?Technology saves $$$, reaches more people, but takes away jobs

FOR WHOM to produce???Ex. If you produce housing, who are you making it for?Workers, professional people, government employees?

Key Economic AssumptionsSocietys wants are unlimited, but ALL resources are limited (scarcity)Due to scarcity, choices must be made. Every choice has a cost (a trade-off)Everyones goal is to make choices that maximize their satisfaction. Everyone acts in their own self-interest.Everyone acts rationally by comparing the costs and benefits of every choice

Scarcity vs ShortageScarcity occurs at all times for all goodsShortages - when producers wont/cant offer goods or services at current pricesShortages are temporaryhttps://www.youtube.com/watch?v=On9WRrFHVjY

Price vs Cost Whats the price? vs. How much does that cost?Price- Amount buyer/ consumer paysCost- Amount seller pays to produce a goodInvestment= the money spent by BUSINESSES to improve their production (ex. Music industry)

Goods vs. Services

Goods- physical objects that satisfy needs and wants1. Consumer Goods- created for final use by individual 2. Capital Goods- manufactured goods used to produce other goods & servicesServices- actions or activities one person performs for another (teaching, cleaning, cooking)

The 4 Factors of ProductionProducing goods and services requires the use of resourcesALL resources can be classified as one of the following 4 factors of production: Land, Labor, Capitol, Entreprenuership

Land - All natural resources used to produce goods and servicesAnything from mother nature Labor People w/ their efforts, abilities, & skills

Capital- tools, equipment, machinery, etc., used in the production of goods & services1. Physical Capital- human-made resources used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.)2. Human Capital- skills or knowledge gained by a worker through education and experience

Entrepreneurship- risk takers that combine the factors of production to create goods and services. Examples-Henry Ford, Bill Gates, Jay Z