Economics- Money Matters

Economics1. A social science- deals with

production of goods and services

2. With limited or scarce resources

3. For consumption now and into the future

Factors of Production1.Land- natural resources

2.Labor- people

3.Capital- machinery/technology

4.Entrepreneurship- profit

Cost• Cost- what someone gives up to

get something else

• Cost is subjective- what is in your mind when you make a decision

• There is no value in a good without subjectivity

• Opportunity Cost- what did you give up to do something?–Time, opportunity, relationships

Currency Rates• Increase in U.S demand for

Japanese goods will increase the demand for yen and raise the dollar price of yen

• When the dollar price of yen increases, the dollar has depreciated=Japanese goods more expensive

New Economy• Technology advances

wealthy countries and raises global competition

• Negative side- Takes fewer workers to produce the same quality of output

Law of Scarcity• Problem

1. Unlimited wants and needs

2. Limited/Scarce resources

• Law of scarcity applies• Economics is concerned with

doing the best with what we have

How a society runs an economy

1. Adam Smith• Laizze-Faire- no government

involvement in economics• Capitalism- businesses set the tone,

hire more people and spend money• Need entrepreneurs to kick start this• Lasted from 1776-1929

How to Save Smart1. $1000 Emergency Fund

2. Pay off all debt except a house

3. 3-6 Months expenses in savings

4. Invest 15% of your money into ROTH IRA plans

5. Pay off your home

6. Build Wealth

Bargains• The key to opening the door to huge

bargains is to negotiate everything–Everything is negotiable at some point

• To get a deal, make sure you know more than the other person

6 Rules of Negotiating

1.Always tell the truth2.Use the power of cash

• It is emotional• It is visual• It has immediacy

6 Rules of Negotiating

3. Use Walk Away Power

4. Shut Up!

5. “That’s not good enough”

6. “If I take away” Technique

Where to Find Deals• Flea Markets

• Ebay

• Conventions

•Individuals•Public Auctions•Coupons•Garage Sales

Comparative Advantage• What happens when you produce

too much?• Answer: Trade (The best way to

have economic growth)• Downside to trading- dependency• Biggest U.S trading partner-

Canada

Global Competition• U.S accounts for 13% of all

trade worldwide

• Major export- Chemicals (and people)

• Major Import- Oil

Global Competition• Major world traders

1. U.S, Japan and Germany- 2.9 Trillion in exports

2. Middle East- Oil

3. Asian Tigers- China, India

Global Competition• Nations trading together will be using

their scare resources more effectively• Free trade

1. Promotes Competition

2. May lower prices

3. More goods available

4. Improve product quality

Global Competition• Definition: The integration of industry, commerce, communication, travel and culture among countries

Global Competition• Pros

1. Increased trade=more competition on U.S Businesses

2. Lower production costs=cheaper products• Cons

1. If you cannot lower production costs=lose market share/employment

2. Outsourcing

How to Invest• The key to investments is

interest rates

• You want your money to make money for you

• The higher the possible interest rate, the greater the risk

Investment Options1. Money Markets (C.D)- Get

from banks• Very low risk with check

writing privileges• Great for emergency

savings

Investment Options2. Single Stocks

• Very high risk

• When you buy stock, you are buying a small piece of ownership in the company

• Your return comes as the company increases in value or pays you some of its profits

Investment Options3. Bonds• A bond is a debt instruments by

which the company pays you money.

• Your return is based on changing interest rates= BAD IDEA

Investment Options4. Mutual Funds- Investors pool

their money to invest• Portfolio managers manage the

pool or fund• Your return comes as the value of

the fund is increased• Great long term options