Economics 120

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Economics 120

• Unit 1 Introduction and Terminology

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Economy

• . . . The word economy comes from a Greek word
  for one who manages a household.

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What is Economics?

• Dictionary The science that deals with the
  production, allocation, and use of goods and
  services.
• Economics definition The study of how we make
  decisions regarding the use of our scarce
  resources.

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Microeconomics vs Macroeconomics

• Microeconomics focuses on the individual parts of
  the economy.
• How households and firms make decisions and how
  they interact in specific markets
• Macroeconomics looks at the economy as a whole.
• How the markets, as a whole, interact at the
  national level.

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Scarcity

• Dictionary definition an insufficient amount or
  supply
• Economics definition anything that has a limited
  supply or an item has more than one valuable use.

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Examples

• Time only 24hrs in a day
• Money most people have a limited supply
• Space land for farmers, space in a store

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Economists study

• How people make decisions.
• How people interact with each other.
• The forces and trends that affect the economy as
  a whole.

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Resources

• Land (or Natural resources)
• free gifts of nature that are useful in
  producing the goods and services that people want
• Examples land mass and natural resources such as
  minerals, wild animals, vegetation and water.

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Resources

• Labour (or Human resources)
• the number of people in Canada
• the variety of skills
• level of education
• technical training of the population
• Examples labourer, teacher

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Resources

• Capital
• Items that are used in the production in other
  goods and services that goes to the final
  consumer.
• Examples Factories, machines, tools

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Goods and Services

• Goods includes things that are used or consumed.
  (tangible)
• Examples clothes, cars, houses, CDs
• Services are work done for others. (intangible)
• Consumed at the time of purchase.
• Examples getting a hair cut, oil change

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Goods and Services

• Capital goods real products that are utilized in
  the production of other products but are not
  incorporated into the other products themselves
• Factories, machinery, tools
• Consumer goods ultimately consumed rather than
  used in the production of another good.
• Car, pencil, textbook

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Economic Goods vs Free Goods

• Free goods are not scarce and have no opportunity
  cost.
• Example air
• Economic goods are scarce and involve a cost
  (financial or opportunity).

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Needs vs Wants

• Needs would be defined as goods or services that
  are required.
• Examples food, clothing, shelter, health care
• Wants are goods or services that are not
  necessary but that we desire or wish for.
• Examples toys, entertainment, gems

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Direct Costs

• The out-of-pocket expenses that are required to
  do something
• Example deciding to attend college involves
  expenses such as paying for tuition, books and
  supplies, rent, utilities

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Opportunity Costs

• The value of the best possible alternative that
  is given up.
• Every time you spend money you incur not only a
  direct cost but also an opportunity cost as well!

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Opportunity Costs

• Let's think about the opportunity cost of going
  out to lunch. If the cost of the lunch was 20,
  you gave up the opportunity to buy 20 worth of
  other things.
• Let's say that you have a new CD, a new shirt,
  and a new book on your wish list, each of which
  costs about 20. Are all of these the opportunity
  cost of your lunch? Not really, since only one of
  these items could be bought with the 20 spent on
  going out to lunch. If the CD is highest on your
  wish list, then the CD is the opportunity cost of
  lunch.

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Total Cost

• Sum of the direct cost and opportunity cost.
• Example Buying a car for 8000
• Direct cost of buying car 8000
• Opportunity cost (if money invested at 5 a year)
  400
• Total Cost 8000 400 8400