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. INTRODUCTION TO ECONOMICSChoices, Choices, Choices, . . .


2. Part 1: The Basics
3. WHAT IS ECONOMICS???Economics the study of how individualsand societies make decisions
about waysto use scarce resources to fulfill wants andneeds.What does THAT mean?!!??!!
4. The Study of EconomicsMacroeconomics The big picture: growth, employment, etc. Choices
made by large groups (like countries)Microeconomics How do individuals make economic decisions
5. ECONOMICS: 5 Economic QuestionsSociety (we) must figure outWHAT to produce (make)HOW
MUCH to produce(quantity)HOW to Produce it(manufacture)FOR WHOM to Produce(who gets
what)WHO gets to make thesedecisions?
6. What are resources?Definition: The things used to make othergoods
7. BUT, theres a Fundamental Problem:SCARCITY: unlimited wants and needs but limited resources
8. Choices, Choices Because ALL resources, goods, and services are limited WE MUST MAKE
CHOICES!!!!
9. Why Choices?We make choices about how we spend our money, time, and energy so we can fulfill
our NEEDS and WANTS.What are NEEDS and WANTS?
10. Wants and Needs, Needs and WantsNEEDS stuff we must have to survive,generally: food,
shelter, clothingWANTS stuff we would really like tohave (Fancy food, shelter, clothing, bigscreen
TVs, jewelry, conveniences . . .Also known as LUXURIES
11. VS.
12. TRADE-OFFSYou cant have it all (SCARCITY remember?) so you have to choose how to spend
your money, time, and energy. These decisions involve picking one thing over all the other possibilities
a TRADE-OFF!
13. Trade-Offs, cont.IN YOUR JOURNAL: What COULD you havedone instead of come to school
today?These are all Trade-Offs! Thanks for beinghere!
14. A special kind of Trade-Off is an OPPORTUNITY COST =The Value of the Next Best Choice(Ex:
Sleeping is the opportunity cost of studying for a test)
15. Opportunity Costs This is really IMPORTANT when you choose to do ONE thing, its value (how
much it is worth) is measured by the value of the NEXT BEST CHOICE. This can be in time, energy,
or even MONEYIf I buy a Then Ipizza cant afford the movies Q: What is the opportunity cost of
buying pizza?
16. ProductionSo how do we get allthis stuff that wehave to decide about?Decisions, decisions
17. PRODUCTION, cont.Production is how STUFF Goods andmuch stuff an Services.individual,
business,country, even the Goods tangible (youWORLD makes. can touch it) products we can
buyBut what is STUFF? Services work that is performed for others
18. Factors of ProductionSo, what do we need to make all of this Stuff?
19. 4 Factors of ProductionLAND Natural Resources Water, natural gas, oil, trees (all the stuff we
find on, in, and under the land)LABOR Physical and Intellectual Labor is manpowerCAPITAL Tools, Machinery, Factories The things we use to make things Human capital is brainpower, ideas,
innovationENTREPRENEURSHIP Investment $$$ Investing time, natural resources, labor and
capital are all risks associated with production
20. Which Factor of Production?
21. Which Factor of Production?
22. Which Factor of Production?
23. Which Factor of production?
24. THREE parts to the Production ProcessFactors of Production what we need to makegoods and
servicesProducer company that makes goods and/ordelivers servicesConsumer people who buy
goods and services(formerly known as stuff) Which Came First?

24. 25. Production Process Land Goods Labor Production/Manufacturing Factory Consumers Capital
ServicesEntrepreneurship
25. 26. Capital Goods and Consumer GoodsCapital Goods: areused to make othergoodsConsumer
Goods:final products that arepurchased directly bythe consumer
26. 27. CHANGES IN PRODUCTIONSpecialization dividing up productionso that Goods areproduced
efficiently Hardees makes hamburgers, not shoes!!Nike makes shoes, nothamburgers
27. 28. CHANGES IN PRODUCTIONDivision of Labor different peopleperform different jobs You do
yourto achieve greater job, and I willefficiency (assembly do my Job and we will be moreline).
EFFICIENT
28. 29. CHANGES IN PRODUCTIONConsumption howmuch we buy(ConsumerSovereignty) The DELL
store is empty because. Everyone is at the APPLE STORE!!!
29. 30. CHANGES IN PRODUCTIONIf we INCREASE land, labor, capital weINCREASE production
Many entrepreneurs invest profit back into productionIf we DECREASE land, labor, capital
weDECREASE productionBUT WHY would we ever DECREASEproduction?
30. 31. The Circular Flow Model
31. 32. PRODUCTION, cont. again A measure of the production of an entire country in one year is
GDPThe total peso value of ALL final Goods and Servicesproduced in a country in a year. (GROSS
DOMESTIC PRODUCT)
32. 33. World GDP Total GDP 2005 11 Korea, Rep. 787,624(millions of US dollars) 12 India 785,468 1
United States 12,455,068 13 Mexico 768,438 2 Japan 4,505,912 14 Russian Federation 3 Germany
2,781,900 763,720 4 China 2,228,862 15 Australia 700,672 5 United Kingdom 2,192,553 16
Netherlands 594,755 6 France 2,110,185 a 17 Switzerland 365,937 7 Italy 1,723,044 18 Belgium
364,735 8 Spain 1,123,691 19 Turkey 363,300 9 Canada 1,115,192 20 Sweden 354,115 10 Brazil
794,098 21 Saudi Arabia 309,778
33. 34. Part 2: Costs and Revenues
34. 35. Costs and RevenuesCost the totalamount of money ittakes to produce anitem (to pay for
ALLFactors ofProduction).
35. 36. Costs and RevenuesRevenues the totalamount of peso acompany or thegovernment takes in.
36. 37. Costs and RevenuesFixed Costs theamount of money abusiness MUST pay eachmonth or year
(like rentand Capital expenses).
37. 38. Costs and RevenuesVariable Costs theamount of money abusiness pays thatchanges over time
(Laborand Raw Materials).
38. 39. Costs and RevenuesTotal Costs = Fixed +Variable Costs.
39. 40. Costs and Revenues - ChartMarginal Costs theadditional Cost of theNEXT UNIT produced.
Margin=Extra Space
40. 41. Costs and RevenuesProfit the differencebetween Total Costsand Revenues. Thisis WHY youre
inBUSINESS (ProfitMotive!) Profit=Revenues-Total cost Profit Motive=why you are in business---to
make MONEY (principles of Capitalism)
41. 42. Costs and RevenuesCost Benefit Analysis weighing theMarginal Costs vs.the Marginal Benefitsof
producing an item Marginalor making any Marginal Costseconomic decision. If Benefitsthe Benefit
isGREATER than theCost, then businessdoes it.
42. 43. Cost-Benefit AnalysisImmediate or short term satisfaction canlead to missing the long-term
benefits.#7 For ExampleImmediate spending on cheap stuffinstead of long-term savings will lead
tolower economic prosperity.
43. 44. Part 3: Comparative Economics
44. 45. Traditional EconomiesDef: EconomicQuestions answered bycustomPredominatelyAgricultural
Developing or 3rdWorldTrade and barterorientedLow GDP & PCI (percapita income = avg.inc.)

45. 46. Command EconomiesDef: Economicquestions answered bythe governmentVery little


economicchoiceNo private ownershipCommunismOld Soviet Union, oldCommunist China,Cuba and
North Korea
46. 47. Karl Marx19th century GermaneconomistAuthor of CommunistManifesto and DasKapital
Government should control economy and distribute goods and services to the peopleFounder
ofrevolutionarysocialism andcommunism
47. 48. Communism FallsMarket reforms in China in themid 1970s.Fall of the Berlin Wall in 1989.Collapse
of the Soviet Union1991.Free Market Capitalism (w/some Mixed Economies) theonly show in town.
48. 49. Free Market (Capitalist) EconomiesEconomic questionsanswered byproducers
andconsumersLimited governmentinvolvementPrivate property rightsWide variety ofchoices and
productsU.S., Japan
49. 50. Adam Smith18th century ScottisheconomistPublished The Wealth ofNations in 1776Explained
the workings ofthe free market withincapitalist economiesInvisible hand of themarket
50. 51. Adam Smith (cont.)Laissez-faire - Government stays out ofbusiness practices hands off to let
themarket place determine production,consumption and distribution.Individual freedom and
choiceemphasized.
51. 52. Principles of CapitalismCompetition morebusinesses meanslower prices andhigher
qualityproducts forconsumers (US!) tobuy.
52. 53. Principles of CapitalismVoluntary Exchange businesses andconsumers MUST befree to buy or
sellwhat and when theywant.
53. 54. Principles of CapitalismPrivate Property Individuals and businesses MUST be able to get the
benefits of owning their OWN property. Government doesnt control it.
54. 55. Principles of CapitalismConsumerSovereignty consumers get tomake free choicesabout what to
buyand this helps driveproduction(Demand drivesSupply).
55. 56. Principles of Capitalism Profit Motive people want to make or save $$$$. Their Self Interest
motivates Capitalism.
56. 57. Principles of CapitalismSocial Safety Net Mixed Economy ideathat says the governmentshould
NOT allow peopleto suffer in economiccrisis (natural part ofCapitalisms BusinessCycle), but
providesecurity instead SocialSecurity, UnemploymentInsurance, etc.
57. 58. Mixed Economy/SocialismGovernment involvementand ownership and controlof property, of
decisionmaking, and companies.Government control ofbusinessSocial safety net
forpeopleSocialismCommon in Europe, LatinAmerica, and Africa
58. 59. John Maynard KeynesThe Invisible Handdoesnt always work.The long run is amisleading guide
tocurrent affairs. In thelong run we are alldead. or . . . thetrouble is people eatin the short run.
59. 60. Keynesian Economics (cont.)Government should intervene in economicemergencies through tax
and spending(Fiscal Policy) and changing the moneysupply (Monetary Policy).This is done to smooth
out the businesscycle (expansion and recession) and keepinflation low.
60. 61. Part 4: Labor Issues
61. 62. LABORWages what companies Salary the amount ofpay employees for their pay a person gets
over alabor (usually based upon year (especially foran hourly rate). professional jobs).Blue Collar
White CollarManufacturing, work with Office jobshands Usually control productionUsually the labor
inproduction
62. 63. When Production DecreasesDownsizing laying off employees to save costs.Outsourcing
sending jobs and manufacturing overseasor contracting to outside companies to save
money.Bankruptcy government allows business to restructureits debt, but now all profits go to paying
off debt ratherthan to the owners/investors.Out of Business lose all your business, money,
andprofits.The current trend in the U.S. is that manufacturing jobsare declining

63. 64. How does Labor protect itself?Labor Unions: organization of workerswho have banded together to
achievecommon goals Wage protection Workplace safety Benefits Job protection
65. Collective Bargaining and StrikesCollectiveBargaining Representatives of the Union and the company
negotiate a contract for the workers; usually they rely on compromiseStrikes When an agreement cant be
reached, workers stop working to try to force the hand of the company