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What is economics?What is economics?

Why Study Economics?Why Study Economics?Read the following examples of possible newspaper Read the following examples of possible newspaper

headlines and describe how these headline headlines and describe how these headline events could effect you.events could effect you.

1.1. War in the Middle East Threatens Oil SupplyWar in the Middle East Threatens Oil Supply2.2. Cost of College Education continues to RiseCost of College Education continues to Rise3.3. Government Indicators warn of Possible Government Indicators warn of Possible

RecessionRecession4.4. New Law Prevents Teens from Working more New Law Prevents Teens from Working more

than Two days a Weekthan Two days a Week5.5. Computer Related Industries experience Great Computer Related Industries experience Great

Shortage in WorkersShortage in Workers6.6. Cost of Health Care continues to Spiral UpwardCost of Health Care continues to Spiral Upward7.7. Unions report that Many Jobs being Lost to Unions report that Many Jobs being Lost to

Oversees WorkersOversees Workers

Fundamental Fundamental EconomicsEconomics

Economic ChoicesEconomic Choices EconomicsEconomics is the study of how we is the study of how we

make decisions in a world where make decisions in a world where resources are limited. It is resources are limited. It is sometimes called the science of sometimes called the science of decision making.decision making.

NeedsNeeds are things we need for are things we need for survival, such as food, survival, such as food, clothing, & shelter. clothing, & shelter. WantsWants are things we would are things we would like to have.like to have.

Economic Choices (con’t)Economic Choices (con’t)

The fundamental economic problem The fundamental economic problem is is scarcityscarcity-we do not have enough -we do not have enough resources to produce all the things resources to produce all the things we would like to have. Because of we would like to have. Because of scarcity, we must make choices scarcity, we must make choices among alternatives.among alternatives.

Three Decisions Society must make: Three Decisions Society must make: What to produce? How to produce? What to produce? How to produce? For whom to produce?For whom to produce?

Using Economic ModelsUsing Economic Models The economy includes all the activity in The economy includes all the activity in

a nation that together affects the a nation that together affects the production, distribution, & use of goods production, distribution, & use of goods & services& services

Economic ModelsEconomic Models-representations of -representations of the real world, based on economic the real world, based on economic theories.theories.1. Business & gov’t often base decisions 1. Business & gov’t often base decisions on the model’s responses to tests.on the model’s responses to tests.2. Model’s based on assumptions.2. Model’s based on assumptions.3. Economists use models to predict 3. Economists use models to predict future of economy.future of economy.

Trade-OffsTrade-Offs

Economic choices involve Economic choices involve trade-trade-offsoffs, or exchanging one thing for the , or exchanging one thing for the use of another. (For example, when use of another. (For example, when you by a product, you exchange you by a product, you exchange money for the right to own that money for the right to own that product rather that something else product rather that something else you could buy for the same price.)you could buy for the same price.)

Trade-Off (con’t)Trade-Off (con’t)

People, businesses, & societies People, businesses, & societies make trade-offs every time they make trade-offs every time they chose to use their resources in one chose to use their resources in one way & not in another. More money way & not in another. More money for education means less money to for education means less money to spend on medical research or spend on medical research or national defense.national defense.

Needs and WantsNeeds and Wants

Divide a sheet of paper in half-Divide a sheet of paper in half-hotdog foldhotdog fold

On one side write Needs. On the On one side write Needs. On the other write Wantsother write Wants

On the next slide is a list of products. On the next slide is a list of products. Place the product in the correct Place the product in the correct category (need or want)category (need or want)

No discussion!No discussion! Place according to Place according to definition given in class.definition given in class.

toothpastetoothpaste SoapSoap BedBed Chewing Chewing gumgum

WristwatchWristwatch CoatCoat JeansJeans Air Air conditionerconditioner

SocksSocks glassesglasses MP3 playerMP3 player FruitFruit

TelevisionTelevision HaircutHaircut WaterWater PedicurePedicure

DeodorantDeodorant MoviesMovies ComputerComputer Cell phoneCell phone

Hair sprayHair spray PizzaPizza Microwave Microwave ovenoven

JewelryJewelry

vegetablesvegetables electricityelectricity RefrigeratorRefrigerator Porsche Porsche 911 (car)911 (car)