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Unit 1 Basic Economic

Concepts
Chapter 1

Objectives:

For students to understand the basic


economic problem.
- For students be able to make rational
economic choices.
For students to be able to explain the
factors of production.
For students to understand the Circular
Flow Model

Topics to be discussed

What is Economics
Basic Economics Question
Circular Flow
Inflation/Recession
Opportunity Cost
3 Basic Questions
4 Factors of Production
Micro and Macro Economics

What is Economics Quiz


Choose the correct answer

Economics is the political science that deals


with unemployment, inflation, taxes,
business cycles, money, supply, and trade.
Economics is the social science that studies
money and banking
Economics is the social science that
examines the interaction of demand and
supply
Economics is the social science concerned
with the problem of scarcity

And the answer is

Economics is the social science concerned


with the problem of scarcity
What is Scarcity?

Not enough resources to meet demand

Why do you think scarcity is a problem?


What else is Economics?

Economics is common sense made confusing.


Economics is the science of decision making.

Economics?

The social science concerned with


how individuals and societies decide
how to satisfy there unlimited wants
given our limited resources.

I cant buy a car if I dont have an


income!

The science of decision making

How to make decisions

The Economic Problem

Scarcity What is it?

Limited resources but unlimited wants

Unlimited wants VS Limited Resources

You cant buy 10 candy bars if the store only


has 5 candy bars to sell.
Cant buy 3 burgers if you only have enough
money for 1.
What are some things that you want to
have? Do you have the resources to
purchase them?
Needs VS Wants

What are some of your needswants.

Scarcity means

We must use things efficiently in order


to maximize the number of goods and
services we can produce.

Dont waste

The Economic Problem (Scarcity)

We cant have everything we want!!


Because of this we need to make choices.

What we want (need) VS what we can give up


(live without)

How does scarcity impact you?

Have you ever wanted something


you couldnt afford to buy?
Did a store ever run out of the item
that you wanted?
Has anyone ever wanted you to do
something that you didnt have time
to do?

Production Possibilities Curve

Graph showing the maximum


combinations of goods and services
that can be produced from a fixed
amount or resources in a given
period of time.

Because resources are limited we are


only able to use so much of them to
produce certain goods.

Pg. 17 18 of your text

Resources Factors of Production

Natural resources (Land) free gifts of nature

Capital Resources manufactured aids to production

Tools, machines, equipment, factories


Things used in producing goods and services and getting
them to consumers.

Human Resources (Labor) mankinds physical and


mental talent

Land, minerals, oil, forests, air, and timber

These are the skills people have that are used to produce
goods and services.

Entrepreneur the individual who combines the


factors of production in order to produce a good or
service.

Risk taker, policy maker, and innovator

Would it be possible to start a


business without one of these
factors?

If you would create any type of


business you wanted what would it
be and what would you need to get
started?

Opportunity Cost

The true cost of choosing one alternative


over the other.

The one that you give up when the choice


is made.

Trade offs giving up one thing in order to


obtain another.

Give an example of a time when you had to


make an economic choice. What was the
opportunity cost?

Opportunity cost is the opportunity lost

College Vs. Work

What are you planning on doing after


you finish high school?

What factors did you consider when


making this decision?

College or work

money now or money later


Family

How will this decision impact your


future?
What are the trade offs of this
decision? Opportunity cost?

Recap

What is the basic economic problem?


As consumers what do we need to
weigh when making economic choices?
What are the four factors of
production?
What is economics?
How do trade offs lead to opportunity
costs?

Lets keep on moving


Economics is common sense made
confusing, so if you are confused you
are likely not alone!!
If you have any questions on the
material that we just covered please
stop me here and we will review a bit
on what you are having a tough time
with.

Types of Economics

Macroeconomics branch of economics that


deals with economic theory and the
economic decisions of large bodies like the
government.

Theories of Economics
Countries and their governments
Trade between countries

Microeconomics branch of economics that


deals with behavior and decisions of smaller
unit like individuals and businesses.

Families, businesses, and communities


Domestic economies

Circular flow of income and


output

What does the circular flow model


show us?
Why is a relationship between the
factor market and the product
market necessary for the economy to
stay strong?

Business Cycle

Parts of the Business Cycle

Peak (boom) Highest point in the


economic cycle.

Economy is at its best and will likely


begin to contract.

Recession (contraction) decline in


the economies performance that
could lead to depression.

Not long term and does not always


impact other economies

Trough (depression) A sustained


economic downturn that impacts our
economy and that of other countries.

Lowest economic point

Recovery (expansion)- Economic


activity begins to pick up and
depression begins to end.

Economic growth occurs

History of the U.S. Economy

Look up the economic patterns of the


United States from the 1800s until
now and map out the various points
on the business cycle to what was
happening in the United States.

3 Basic Economic Questions

What to produce?

With limited resources, deciding what is


needed the most is often a factor in
determining what will be produced.
What is the need or want of this product?
What is the point of making a product
that no one is going to buy. Businesses
need to make moneyso they choose
products that people want.

3 Basic Questions Cont

How should it be produced?

Technology, labor, capital, ect.


getting the lowest cost to make the
product.
Are we going to make the product from
scratch or will a machine be making the
product.

What will each option cost?

Will having new technology allow us to


lower our expenses?

3 Basic Questions Cont

Whom should it be produced for?

Who is going to use this product?

Most goods and services are distributed to


individuals through a price system.

Did Apple market the ipod to the large population


of elderly people in the U.S. or the youth? Why?

If you want it and can afford to buy ityou will.

Products can also be distributed through


other means; force, first come, lottery,
majority, ect.

Recap

What are the three basic economic


questions?
Compare and contrast micro and
macro economics.
Explain the circular flow of income
and output as it relates to the
economy.
Describe the business cycle.

Inflation

The rate at which the general level of


prices for goods and services is
rising, and, subsequently, purchasing
power is falling.

As inflation rises, every dollar will buy a


smaller percentage of a good. For
example, if the inflation rate is 2%, then
a $1 pack of gum will cost $1.02 in a
year.

Recession

A significant decline in activity across the


economy, lasting longer than a few
months.

It is visible in industrial production,


employment, real income and wholesale-retail
trade. The technical indicator of a recession is
two consecutive quarters of negative economic
growth as measured by a country's gross
domestic product (GDP).
A recession generally lasts from six to18
months, and interest rates usually fall in during
these months to stimulate the economy by
offering cheap rates at which to borrow money.

Recession is a normal (albeit unpleasant) part


of the business cycle; however, one-time crisis
events can often trigger the onset of a
recession. The global recession of 2008-2009
brought a great amount of attention to the
risky investment strategies used by many
large financial institutions, along with the truly
global nature of the financial sytem. As a result
of such a wide-spread global recession, the
economies of virtually all the world's
developed and developing nations suffered
extreme set-backs and numerous government
policies were implemented to help prevent a
similar future financial crisis

What is the connection between


Inflation and Recession?

Which came first the chicken or the recession?

In many cases the causes of recession can be


confusing. Can inflation cause/worsen a recession?
Or does a recession cause/worsen inflation?

Botha recession does not always have a single cause,


but can be caused by many factors. Once a recession
begins, its impact is usually felt all over the economy,
including inflation. Inflation occurs without a recession,
but a dramatic change in the value of money can push
an unstable economy into a recession.

Look at the causes or influences


of our most recent recession

Poor business practices started the


recession

It was likely on its way already

Inflation
Decline in the stock market
Increased foreclosures/ drop in
housing prices

In Short

Economics is common sense made


confusing

We cant have everything that we want, so we have to


make choices with our money.
Businesses have to make choices with their products.
Society has to make choices about how it should or will
function.
The Government makes choices about laws and expenses.
Just to name a few!!!

Chapter Review

What is the basic Economic question?


What does a production possibilities curve show
us?
What are the four factors of production?
What are trade offs and opportunity costs?
What are the three basic economic questions?
Define microeconomics and macroeconomics.
What are inflation and recession?
How does the circular flow of income and output
impact the economy?