Economics 101

Economics Is a Science that examines how goods and services are produced, sold, and used. It involves how people, governments and businesses make choices about using

limited resources to satisfy unlimited wants. WHY?

Why Economics is Important to Understand Understanding the role of economics in the buying decisions of consumers helps

businesses make better plans and decisions.

Factors of ProductionLAND

Natural Resources (Soil, Water, Minerals, Plants, Animals, Climate)

LABORAgricultural WorkersConstruction WorkersFactory WorkersMinersProfessionalsService Workers

CAPITALTools, Equipment, Machinery

BuildingsVehicles & Transportation SystemsUtilities

ENTREPRENEURSHIPBusiness Owners

Scarcity“Scarcity is an economic principle stating that because of limited resources, an

economic system cannot possibly produce all the goods and services that people want; therefore, choices must be made about how the limited resources will be used.”

-Consumer Economics & Education, Glencoe, 2003

Opportunity Costsopportunity cost refers to what a person gives up when a decision is made. This cost, also called a trade-off, may involve one or more of your resources (time, money, and effort).

personal opportunity costs may involve time, health, or energy. For example, time spent on studying usually means lost time for leisure or working. However, this trade-off may be appropriate since your learning and grades will likely improve.

financial opportunity costs involve monetary values of decisions made. For example, the purchase of an item with money from your savings means you will no longer obtain interest on those funds.

Basic Economic Principles People choose because of limited resources. People’s choices involve costs. People respond to incentives in predictable ways. People create economic systems that influence individual choices and incentives. People gain when they trade voluntarily People’s choices have consequences that lie in the future

Economic Systems An organized way in which a nation chooses to use the resources to create goods and

services.

TRADITIONAL ECONOMYEconomic decisions are based on a society’s values, culture, and customs.• Large Rural Populations• Farming & Hunting• Barter Economy• Little to No Manufacturing• Survival

COMMAND ECONOMYThe Government owns and controls all the factors of production, decides how much will be produced and sets the prices of goods and services.• Citizens get equal share• Jobs are available for everyone• Gov. provides education, medical

care, and housing.• Citizens give up individual

freedom

Economic Systems An organized way in which a nation chooses to use the resources to create goods and

services.MARKET ECONOMYIndividuals are free to make their own economic decisions. Also known as a Free Enterprise Economy.

• Private Property• Profit• Economic Freedom• Voluntary Exchange• Competition

Capitalism is an economic system where the economic resources are privately owned by individuals instead of the government.

MIXED ECONOMYThe government and individuals make decisions about economic resources.

• Most governments are mixed.• Gov. departments handle

different aspects of the economy (ex. National Defense, Law Enforcement, Roads etc.)

• Private businesses run with little Gov. involvement.

• Citizens are free to make own economic decisions.

Check For Understanding What is the basic economic problem? List four factors of production a nation uses to make goods and supply services for its

population. What are the four economic systems? What are market forces? Identify three market forces that impact business.

Market Forces Economic factors that affect the price, demand, and availability of a good and service.

Market Forces include supply and demand, the profit motive, and competition.

Indiana Jones https://www.youtube.com/watch?v=RP0j3Lnlazs

Demand How much people want to purchase of a good given its price

Law of demand= as price goes down, quantity demanded goes up

Supply How many goods are available for purchase at a given price

Law of supply: as price goes up, more goods will be supplied

Supply and Demand Terms Equilibrium- The price and quantity at which supply and demand are equal

Shortage- when demand is greater than supply

Surplus- when supply is greater than demand

Shifts in Supply and Demand www.youtube.com/watch?v=Ng3XHPdexNM 

ShiftsIn Supply

Productivity Technology Subsidies Weather Taxes

In Demand

Changes in taste and preference Changes in income Changes in expectations Changes in the prices of related goods Population size and composition

Shifts in Supply and Demand

Supply and Demand of Workers