Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek...

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Economics Chapter 1 Hooray for Notes!

Transcript of Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek...

Page 2: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

What is Economics?

• Economics is the study of how people seek to satisfy their needs and wants by making choices

Page 3: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Economics• The study of Economics can be broke into two

distinct areas:• MICROeconomics is study of economics which

deals with single businesses, firms and households

Page 4: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Economics• MACROeconomics which deals with

governments, international economic relations, and world wide economic issues

Page 5: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Need

• Something necessary for survival such as Air, Water, or Shelter

Page 6: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Want

• An item we desire but is not essential to survival

Page 7: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Are these items Needs or Wants?

Page 8: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Goods and Services

• Economists refer to the things that individuals and institutions want as either goods or services

• Goods- are tangible items of value, things that we can see or touch.

• Examples- scissors, medicines, textbooks, cars, footballs, make-up/ cosmetics, etc

Page 9: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Goods and Services

• Services are intangible things that have value.

• Intangibles can neither be seen or touched

• Haircuts, medical care, and education are examples of services

Page 10: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Do they make goods or perform services?

Page 11: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Consumers

• As goods and services satisfy our wants, we consume them

• Consumers are people who buy goods and services for personal use

• Consumption is the final act of buying goods and services

Page 12: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Consumption

NO

Page 13: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

NO

Page 14: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

NO

Page 15: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

NO

Page 16: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

NO (CREEPY /\)

Page 17: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Almost…

Page 18: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

CONSUMPTION!!!!

Page 19: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

POST CONSUMPTION (Not consumption though)

Page 20: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Factors of Production

• Factors of production are the ingredients that go into the production of goods and services.

Page 21: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Land

• As a factor of production land is all natural resources used in order to produce other goods and services

• Land can be the actual land where a business can be located

• Land is also anything someone uses that comes from nature to make goods or services

Page 22: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

How is land used in these examples?

http://www.youtube.com/watch?v=3GD5EUVIvWo

Page 23: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Standard of Living

• Standard of Living (SOL) refers to the quantity and quality of goods that are available to an individual or a society.

• Some nations have inferior land or natural resources which contribute to their lower standard of living.

Page 24: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Example of Inferior Natural Resources That Contribute to a Lower Standard of Living

http://maps.google.com/maps?ct=reset

Page 25: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Standard of Living

• If land is limited or inferior, regions have to strengthen their other production factors.

• Examples include Japan, Denmark, and Switzerland

• http://maps.google.com/maps?ct=reset

Page 26: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Renewable vs. Non-Renewable Resources • Renewable Resources are natural resources

that can be replaced or renewed.– For example Christmas trees that are replanted

and regrown after being cut down.

Page 27: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Non-Renewable Reasources

• Non-Renewable resources are natural items that once they are used, they are gone forever

– Oil/ Petroleum is the easiest example of a non renewable resource.

Page 28: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Oil as a Non-renewable resource

Page 29: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Scarcity

• Scarcity is the idea in economics that everything has a value and nothing is unlimited

• Regardless if a resource is renewable or non-renewable, the law of scarcity tells us nothing is unlimited.

• From the air we breath, to time itself, there is nothing in our existence that is unlimited

Page 30: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

THE START FOR TODAYYYYY

• http://www.youtube.com/watch?v=AiIHvQovKkk

Page 31: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Labor

• Labor is the effort that a person devotes to a task for which that person is paid

• Individual Labor is easy to analyze: What does a Fireman do? What about that Pawn Stars clip?

• Labor on a Macroeconomics level is measured by Labor Productivity

Page 32: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Labor Productivity

• Labor Productivity is defined as the output per worker per time period

• Another way to say it: the amount each worker produces in a specified time

• Countries can effect productivity on the following levels:

Page 33: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

3 Factors of Labor Productivity

1) The skill of the labor force

-Countries can invest in a variety of ways to educate, improve, or further the skills of their workers.

-Examples include: trade schools, workshops, classes on new technology, etc

Page 34: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

3 Factors of Labor Productivity

2) The quality and quantity of machinery and tool available

-Countries can provide more tools or improve the impact these items have

VS.

Page 35: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Another Way to Put It…

This…

http://www.youtube.com/watch?v=B3vXhLt4bAc&feature=related

Page 36: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Versus…

THIS!

http://www.youtube.com/watch?v=QC8jnSaCqxY

Page 37: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

3 Factors of Labor Productivity

3) TECHNOLOGY- society’s knowledge of production or production methods

For example: The United States has twice the population as Bangladesh

Yet the United States produces well over 20 times the amount of goods and services as Bangladesh

Page 38: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.
Page 39: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Labor Productivity

Page 40: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Capital

• The FINAL factor of production, capital is any human made resource that is used to produce other goods and services

• The two categories of capital are human capital and physical capital

Page 41: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Human Capital

• Human Capital is the knowledge and skills a worker gains through education and experience

• Right now, YOU ARE GAINING HUMAN CAPITAL

Page 42: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Physical Capital

• Capital Goods = Physical Capital

• Physical Capital is human-made objects used to create other goods and services

Page 43: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Physical Capital Continued…

• Physical Capital is easier said to be all buildings and tools used in production of goods and services

Page 44: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Physical Capital Continued…

• Physical Capital is easier said to be all buildings and tools used in production of goods and services

Page 45: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Depreciation

• Depreciation is the accounting term we use to measure the decline in the value of capital goods.

• Tools and buildings that we as being modern today will not be seen that way in 50 years, 100 years, etc.

Page 46: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Easy Examples of Depreciation < “Old”

“New” >

Page 47: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Easy Examples of Depreciation < “Old”

“New” >

Page 48: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Capital Formation

• Capital Formation is the production of capital goods

• Because capital goods are so vital to the production of goods and services, capital formation is an essential economic process in all societies

• “Improve or be left in the dust”

Page 49: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Japan After World War II

• After World War II, the country of Japan was devastated after 4 years of total war.

Page 50: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Japanese City Percentage of city destroyed Size of American City

Yokohama 58 % Cleveland

Tokyo 51 % New York

Toyama 99 % Chattanooga

Nagoya 40 % Los Angeles

Osaka 35.1 % Chicago

Shimonoseki 37.6 % San Diego

Kure 41.9 % Toledo

Kobe 55.7 % Baltimore

Omuta 35.9 % Miami

Wakayama 50 % Salt Lake City

Kawasaki 36.2 % Portland

Okayama 68.9 % Long Beach

Kagoshima 63.4 % Richmond

Page 51: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Japan After World War II

• In the year following the year and their subsequent banning of all armed forces, Japan invested heavily in the production of capital goods instead of consumer goods

• “A factory built instead of products made”

• While this hurt their country in the short run, today Japan is one of the largest exporting countries of goods in the world.

Page 52: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Entrepreneurship

• Entrepreneurship describes the process of individuals called entrepreneurs create new enterprises or improve existing ones.

Page 53: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Famous Entrepreneurs

• John Davison Rockefeller (July 8, 1839 – May 23, 1937) was an American oil magnate and philanthropist. He was the founder of the Standard Oil Company, which dominated the oil industry and was the first great U.S. business trust.

• The first man in history to be worth over a billion dollars in 1916

Net worth$663.4 billion in 2007 dollars, according to List of wealthiest historical figures, based on information from Forbes – February 2008.

Page 54: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

NOT So Famous Entrepreneurs…

Hussain "Jeff" Jaffarie

• The innovator of the “Toasted Sandwich” in which he put gas station sandwiches into an oven created by the Tombstone pizza company

• This was the central idea behind a chain of sandwich shops which are now known as Quiznos. In 2004, they made a $104 Million in Sales.

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Page 55: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Your Turn

• On the index cards handed out:

• Write a job on this card

• (A G rated- PG13 rated occupation please)

• Then write on this card this…

Page 56: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

• (The title of the job)

-Land

-Labor

-Human Capital

-Physical Capital

Page 57: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Exchange Cards!

• See if you can figure out all the factors of production of this card

• When your done, switch with someone else

• Which one is the easiest, which is the hardest?

Page 58: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

THE THREE FUNDAMENTAL ECONOMIC QUESTIONS

Page 59: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Question 1

• What Goods and Services Should Be Produced?– Unable to have everything, individuals and

institutions need to choose between those goods and services they will buy or produce and those they will forgo.

Page 60: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

QUESTION 1 CONTINUED…

• Because we cant have everything, we now need to make choices with what we want.

• For example, If I want to go on vacation and I go to Florida, I cannot go to the Bahamas during the same time

• In this case, The Bahamas is a trade off and an opportunity cost.

Page 61: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

My Vacation

If I choose to go to Rome…

Then I can’t go to these places at the same time…

London

Venice

Morocco

Paris

Switzerland

These are all trade offs…

Page 62: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Trade-off

• A trade-off takes place when one thing is given up in order to obtain something else…

Instead of…

Page 63: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Opportunity Cost • Opportunity cost is most optimal alternative

that you DID NOT choose when you made your trade off

• “The Best Trade-off”

• In the previous example just simply pick your favorite fast food alternative to McDonald’s. That is your opportunity cost

• All the rest are referred to as “Trade-offs”

Page 64: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Friday Night Lights

• Friday nights in the Fall mean football games for our players, cheerleaders, game workers, fans, etc.

• However, what would be something else you would do instead?

• What would be the best alterative?

Page 65: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Marginal Cost (Marginalism)

• Marginal Cost, or Marginalism, is when economists refer to the usefulness of adding one more item to the production of a product or service

• An easy way to put it, adding another student to this current class… Could be good, or bad…

Page 66: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Question 2

• How Should Goods and Services Should Be Produced?– There is more then one way to produce a good or

service but what's the optimal way to combine the factors of production to create them?

Page 67: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

The Textbook’s 3 Examples

• Example 1: Manufacturing Automobiles-Pros/ Cons of many workers vs less workers and more technology

• Example 2: Building a New School– Pros/ Cons of building a 1 floor school that takes up 3 acres of

land or a 2 story school with higher construction costs.

• Example 3: Mining Companies – Extracting ores from the ground, mining companies can have a high

cost and protect the environment or low cost and heavy environmental damage.

Page 68: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Question 3 • WHO Should Receive the Goods and Services

Produced? – Sub questions in this category can include:• Should everyone have an equal share?• Should some people be allowed to have more than

others?• Should goods and services be awarded according to

people’s contributions to society? • Should we divide goods and services based on need?• How should we measure a person’s contribution on

society?

Page 70: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

However…• Shouldn’t Neurosurgeons, who save people’s

lives every time they perform, be paid more then these guys?

Imagine these two guys as your neurosurgeons…

“Would Doctors Rodriguez and Manning please report to the operating room?” NO THANKS!!!

Page 71: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

While in other countries…

• Athletes may be considered just jobs like everyone else in certain countries…– The Cuban National Baseball Team has won the gold

medal 3 times and the silver 2 times the 5 total times they have played in the Olympic Games

– They have won 25 of 35 gold medals at the Baseball World Cup

– Yet because they are a communist country, members of the team are paid on par with everyone else in the country…

Page 72: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Economic Systems

• Economic Systems answer these 3 economic questions…

• There are 3 general Economic Systems to be aware of– Traditional Economy– Command Economy– Market Economy

Page 73: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Traditional Economy

• In this type of Economy, FAMILIES answer WHAT gets produced

• These economies are local to 3rd World countries found in Africa, Asia, and Latin America

• Who receives the goods and services and HOW it is produced are a matter of custom and tradition

Page 74: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Traditional Economy

Who makes our economic decisions?

Page 75: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

WE DO!!!

Page 76: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Command Economy

• ALL ECONOMIC QUESTIONS ARE ANSWERED BY THE GOVERNMENT!!!

Page 77: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Command Economy

• In this type of Economy, GOVERNMENTS answer WHAT gets produced

• WHO gets the goods and services- GOVERNMENT

• HOW it is produced- GOVERNMENT

• These countries would include: Cuba, North Korea, China, and, not now, but historically, the Soviet Union.

Page 78: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Command Economy

Who makes our economic decisions?

WE DO!!!

Page 79: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Market Economy

• The WHAT, HOW, and WHO are all made by individuals and businesses (Buyers and sellers)

• With this said these buyers and sellers make up the “Market System”

• In this system, even though it may seem opposite, the government plays a much less role then a Command Economy

Page 80: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Market Economy

Who makes our economic decisions?

Page 81: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Market Economy

WE THE PEOPLE DO!!!

Page 82: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Scales of Economies

Page 83: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Last thing for Chapter 1… Ceteris Paribus

• Ceteris Paribus translates into “Other Things Being Equal” in Latin

• This is an idea where we ignore exceptions and simply say that “People will buy more of an item at a lower price, ‘all other things being equal’”

Page 84: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Ceteris Paribus continued…

• For example… we know that this type of shoe…

• People are willing to buy at $100 plus…

Page 85: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Ceteris Paribus continued…

• But with this type of shoe…

• Are people are willing to buy at $100 plus?

Page 86: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Air Jordan vs. Black Shoe

Now even if the Jordan is $100 and the shoe on the right is just $75, will people buy more of the shoe on the right? NO, BUT IF WE USE CETERIS PARIBUS, WE CAN SAY YES!!!

Page 87: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

Ceteris Paribus continued…

• Ceteris Paribus enables observer to focus on one or two variables

• While, at the same time, Recognizing that other variables exist

• In other words, at time in Economics class, THERE ARE NO “WHAT IF’S”!!!!

Page 88: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

But Mr. Newman… What if?

NO!

Page 89: Economics Chapter 1 Hooray for Notes!. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices.

The… FREAKIN…

END