ECONOMICS NOTES

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ECONOMICS NOTES

• Chapter 1

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What is the basic economic problem?

• SCARCITY

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Scarcity

• Scarcity exists because of unlimited wants and
  needs with limited resources available

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How can we deal with scarcity?

• Legally
• Rationing
• Substitution
• Trade
• Locate other Sources
• Create Alternatives

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PPV (People Powered Vehicle) from the 1970s
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Illegal

1. Theft
2. Blackmarket
3. Counterfeit

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• Economics The Study of how goods and services
  are produced, distributed and consumed
• Good tangible products
• Service intangible items of value
• ex. - haircut, oil change, education
• Production creation of goods and services

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Basic Economic Questions

• What? To produce
• How? To produce it
• For Whom? Who benefits from the production

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Factors of Production resources necessary for
production to take place

• Land natural resource
• ex. Tree in the forest, coal in the ground
• Labor human resource
• ex. Person cutting down the tree
• Capital man made resource
• ex. The tree after it is cut down
• Entrepreneurship organizational resource
• ex. The person who decides what trees are cut,
  hires the workers, and oversees the production.

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• Financial Capital money used to buy products
• Capital goods tools, equipment or other
  manufactured goods used to produce other
  goods/services.

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• Model tool used by economists to make
  predictions ex charts, graphs, diagrams
• Data factual information
• Predictions educated guesses based on data
  the more data, the more accurate the predictions

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• Division of Labor dividing up jobs into
  specific tasks ex assembly Line
• which leads to
• Specialization becoming skilled at a specific
  task ex. Teacher, electrician, auto mechanics
  etc.
• Which leads to
• Specialized Capital tools used for a specific
  task ex. X-ray machine, hydraulic lift
• Wealth accumulation of goods and/or resources

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• Economic Interdependence economic activities in
  one part of the country or world affects what
  happens elsewhere, work in your specialty and you
  are dependent on others to provide your other
  needs.
• Income flow of value
• You do not have to have a high income to become
  wealthy, and if you have a high income it does
  not guarantee that you will be wealthy

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Trade-Off giving up one thing in exchange for
something else

• Opportunity Cost the value of the item you give
  up when a choice or decision is made
• Example Next year you have the choice of going
  to work or going to college.
• If you choose to go to college, what is your
  opportunity cost?
• The money you would earn working.
• If you choose to work instead, what is your
  opportunity cost?
• The increased earnings you will have in the
  future.

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Rational Choice giving up something of lesser
value in exchange for something of greater value

• Utility usefulness of an item

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Market where products and resources are bought
and sold

• Factor Market where the 4 factors of production
  are bought and sold
• Product Market Market where all final
  goods/services are bought and sold

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Circular Flow Chart Diagram of the economy that
shows the flow of goods, services, resources and
value

Product Market
Factories or Firms
Households
Factor Market
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What is missing? Where else would your money
go?Banks, government, other countries in trade
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Graphs

• X axis is the horizontal axis
• Y axis is the vertical axis
• A graph is a model not reality, because it can
  not include all of the factors.

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• Production Possibilities Frontier Graph is a
  graph that shows the different combinations of 2
  products produced from the 4 factors of
  production available
• Sample Graph
• Data
• Combinations Radio TV
• A 600 0 TV
• B 400 50
• C 200 100
• D 0 150
• Radio

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• If production appears inside the production
  possibilities frontier (pt p) this means?
• the firm is not using all of its factors of
  production
• OR
• it is not using its resources efficiently
• Production represented by the curve is at maximum
  efficiency
• Production can not take place outside the
  frontier at this time. In order for production
  to take place outside the frontier in would
  require . . .
• More resources
• Or
• New technology

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Decision Making Process

• The 5 steps include
• Define the problem
• list alternatives (choices)
• List Criteria (priorities or what is important to
  you)
• Evaluate (means it meets the criteria, - means
  it does not)
• Make a decision

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Sample What college should I attend?