Mr. Rosenstock Economics the Fundamental Problem of Economics Needs and Wants Very few people are satisfied with what they have Needs: Basic requirements for survival like food, clothing and shelter Wants: Are the way of expressing a need (like wanting pizza to express the need for food) No Such Thing as a Free Lunch Because resources are limited, nothing produced is ever really free Everything costs something Scarcity The fundamental problem facing all societies is that of Scarcity Scarcity is the condition of not having enough resources to produce all the things people would like to have Scarcity leads to choices Choices (Although we cant have it all, we can have some of it) WHAT to produce? With limited resources, what should society produce? Where should production go: the military, food, housing, clothing etc? HOW to produce? Should factories use mass production that requires more equipment and less workers, or methods that require less equipment and employs more workers? for WHOM to produce? After the first two questions are resolved, society needs to decide for whom to produce Do goods go to the wealthy or the middle class or the poor; professionals or common workers? Why are some countries rich and others poor? (low, middle and high income) Economic Growth Economic growth raises standards of living even in the face of continuing scarcity ~1750 Population Growth and Important World Events Economic growth is like having a bigger pie. And a bigger pie leads to larger slices even for the poor The Secret to Economic Growth: Productivity The output produced from a given set of resources in a given period of time. The output produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time. Increasing productivity means that greater output is produced from a given set of resources in a given period of time. The Key to Economic Growth: Institutions The formal and informal rules of the game that shape incentives and outline expected and acceptable forms of behavior in social interaction. The formal and informal rules of the game that shape incentives and outline expected and acceptable forms of behavior in social interaction. What are the rules of the game (the accepted and expected forms of social interaction) in: Dating ? Institutions matter Property rights Property rights The rule of law The rule of law Open markets Open markets Entrepreneurship and innovation Entrepreneurship and innovation Institutions shape Incentives The reward or penalties that influence peoples choices and behavior. Factors of Production Land: the gifts of nature are called land. Our resources. Capital: the tools, equipment, machinery and factories used in production of goods and services. This is different from financial capital which is the money used to buy the tools and equipment Labor: the workers Entrepreneurs: the individuals who establish their own businesses in search of profits Production: the actual process of creating goods and services What is Economics and its Scope Economics: the study of how societies satisfy seemingly unlimited and competing wants through the use of limited (scarce) resources Economics is also concerned with things like: Gross Domestic Product (GDP): the total value of all the goods and services a country produces in a 12 month period. It is an indicator of a nations economic health and ability Unemployment, inflation, international trade, interaction of business and labor, government spending and taxes among others. Analysis: economics also focuses on questions like: Why are prices for some items high and others low? Why do some people earn higher incomes than others? How do taxes affect people and their desire to work and save?