1. Basic Economics Unit One

2. I. What is Economics?

3. A. Study of Choice

• All decisions involve choices

• Resources are finite or limited.

• Human needs and wants are unlimited.

• Needs necessities (water, food)

• Wants luxuries, things not needed.

• Scarce when there is a limited amount of an item.

• Shortage a sudden shortfall of a product.

4. B. Decisions

• Trade offs always two or more options in our choices.

• Costs What is given up when making a decision.

5. C. National

• Guns and Butter

• Guns = Military spending

• Butter = Domestic Spending

• • Social Security

• • Medicare

• • Medicaid

6.

• 4. Presidential Decisions

• • FDR

• • • Great Depression

• • • WWII

• • LBJ

• • • Great Society

• • • Vietnam

• • GWB

• • • No Child Left Behind

• • • Tax Cuts

• • • War on Terror

7. 5. Production Possibilities Curve

• A graph that shows alternative ways to use an economys resources.

• Efficiency Using resources to maximize production of goods and services.

• Underutilization Using fewer resources than an economy is capable of using.

• Examples:

• • Cost To an economist, countries give up on ideas, products.

• • Law of Increasing Costs Cost of producing the second item increases.

8. D. Individuals

• Entrepreneurs use the Factors of Production

• • Land

• • Labor

• • Capital

• • • Physical Capital - All human-made goods

• • • Human Capital The skills and knowledge gained by a worker through education and experience.

• Thinking at the Margin taking into consideration the consumption of one more unit.

9. II. Different Economies

10. A. Answering the Three Economic Questions

• What goods and services should be produced?

• How should goods and services be produced?

• Who consumes goods and services?

• Who and how these questions are decided is one of the most significant questions in economics.

11. B. Economic Goals and Societal Values

• Economic Efficiency- Societies attempt to produce most out of their resources.

• Economic Freedom- Unlimited choices.

• Patriotism- The love of ones country

• Many feel the USA should ensure economic freedom.

• Instead of economic or political freedoms, China favors freedom from poverty instead.

12. C. Economics and Values

• Traditional Economy relies on habit, custom, or ritual,

• • Slow to change, but evolve into other economies.

• • These rely on bartering, are inefficient.

• Market Economy production and consumption are based on exchanges people make.

• Command Economy central authority is in control (Moscow in Soviet Union).

• Mixed economy in between command and market.

13. D. Adam Smith Wealth of Nations

• Thought self-incentives like profit motivated people.

• Companies work to provide best product and lowest price to beat competitors.

• Marketplace automatically fixes itself principle known as invisible hand.

• Government should stay out of economy policy known as laissez faire.

14. E. Marx & The Communist Manifesto

• Marx & Engels (his co-author) had the following ideas about people & their delusions: They

• • are greedy

• • Want things like TV, cars, big houses (materialism).

• • Were power hungry (rich controlled poor).

• • Used religion, alcohol, drugs -to relieve themselves of reality.

• Society was to evolve

• • Workers (proletariat) were to revolt against the rich (bourgeois) & take over government, means of production.

• • Socialist society evolves - people distribute wealth evenly & no more oppression.

• • Eventually people would not be greedy and no longer need government, live in harmony, in a communist state.

• • PROBLEM - Dictators can take over easily & create an authoritarian regime.

15. F. Modern Economics and Mixed Economies

• Countries slide on economic continuum that ranges from command to free.

• China is now involved in a transition period to move toward privatization (free).

• Most nations strive to become as free as possible and let decisions be made in the private sector.

• The USA is also privatizing (more businesses, less regulations.)

16. III. American Economy

17. A. Free Enterprise, Yesterday and Today

• Americas birth was marked by wishes for new freedoms and less taxes.

• Over time problems have to be met by solutions from the govt. Follows these steps:

• • Market failure: something the private sector cannot do.

• • Public interest people want govt to intervene if the economy cannot provide.

• • Public policy Government responds with laws.

• • Interest groups lobby politicians, or give them ideas.

• • Examples:

• • • Healthcare unfulfilled.

• • • Transportation too big for companies.

• • • Water and sewage same

18. B. Providing Public Goods

• Cost of public goods is spread more evenly.

• • The cost would be higher if it were provided privately.

• • These generally benefit society as a whole.

• Benefits in the economy can be counted through cost and profits. Others are behind the scenes or side effects.

• • Positive externalities: Wal-Mart moving close to town will increase property values.

• • Negative externalities: Coal burning power plants = exhaust that may harm breathing Government responds with pollution laws.

19. C. Tracking Our Successful Economy

• Macroeconomics/Microeconomics = Big/Small

• Gross Domestic Product Income of a whole nation.

• Business Cycle Expansion and contraction.

• Technology Anything used to help produce (biggest advantage for USA) has.

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