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Economics : The Basics! Please take notes on the following slides in your Business notebook. What is Economics?. Economics -Social science which deals with scarce resource allocation (use) for attaining: 1. society’s unlimited needs/ wants

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Economics : The Basics!

Please take notes on the following slides in your Business notebook

what is economics
What is Economics?
  • Economics-Social science which deals with scarce resource allocation (use) for attaining:
    • 1. society’s unlimited needs/ wants
    • 2. greatest/ max. satisfaction for goods/ services
  • Foundation rests on 2 fundamental facts:
    • 1. Resources = Limited
    • 2. Scarcity-Needs/ wants for goods/ services are unlimited but resources are limited!
      • Scarcity = There are not enough goods to produce all people’s wants (Not $ lack but resource lack)
      • Most important fact of Econ!
3 society sectors
3 Society Sectors
  • 1. Consumer-Person who buys product
    • Consumer goods (Durable/ Non-Durable)
  • 2. Business-Capital goods (Machinery, tools, factories, etc.)
  • 3. Government-Public goods (Parks, schools, highways, etc.)
basic terminology
Basic Terminology
  • 1. Need-Necessity for life (Food, shelter, etc.)
  • 2. Want-Anything for which is not need (Luxury)
  • Note: Need and Want are UNLIMITED
  • 3. Goods-Material (Clothing, automobile, food, boat, etc.)
  • 4. Service-Activity (Haircut, legal advice, taxi ride, etc.)
  • 5. Resources-(Factors/ Means of Production) Inputs that go into goods/ services production
    • Ex. Natural resources, labor, knowledge and capital
    • Resources = LIMITED
4 resource categories
4 Resource Categories
  • 1. Land-(“Nature’s Gifts”) Anything given by Mother Nature that is used in goods/ services production
    • Ex. Territory, Natural Resources (Oil, timber, iron ore, water, etc.)
  • 2. Labor-Man’s physical/ mental capabilities which are used in goods/ services production
  • 3. Capital-Anything manmade used in goods/ service production
    • Ex. Machinery, tools, factories, etc.
    • Financial Capital-$ used to buy tools/ equipment used in production
  • 4. Entrepreneurial Ability-Combines land, labor, capital into goods/ services production
    • Entrepreneur-Innovator, risk taker, and/or manager (Owner) looking to make profits
what s the goal of economics
What’s the Goal of Economics?
  • Answer: Use scarce resources efficiently in effort to attain satisfaction for society’s unlimited needs, wants for goods/ services
    • Do best w/ what you have
    • People have unlimited needs and wants, and using resources wisely to suit this issue
  • Societies must economize
    • Economize-Gain society’s greatest satisfaction for needs/ wants through:
      • a. Full Employment-All resources employed
      • b. Full Production-Resources are assigned/ combined properly
what must societies avoid
What Must Societies Avoid?
  • 1. Underemployment-All resources are not employed in production
  • 2. Underproduction-Resources are not assigned/ combined properly
  • Note: Again, goal of economizing is Full Employment and Full Production!
2 broad areas of study in econ
2 Broad Areas of Study in Econ
  • 1. Macroeconomics-Overall econ activity/ interaction between major economy sectors
  • 2. Microeconomics-Individual unit’s activity in economy


3 basic questions of econ
3 Basic Questions of Econ
  • 1. What to produce?
  • 2. How to produce?
  • 3. For whom to produce?
4 steps of scientific method
4 Steps of Scientific Method
  • 1. Observe-Look at world around you
  • 2. Hypothesis-Make educated guess based on observation
  • 3. Test Hypothesis-Set up experiment to see if hypothesis is accurate or not
    • Perform multiple times under similar conditions to find cause and effect
  • 4. Accept, Revise or Reject Hypothesis
    • Was your hypothesis right or wrong? Why?
looking at the 2 types of tools of economic reasoning
Looking at the 2 Types of Tools of Economic Reasoning
  • 1. Factual-Includes measurable units:
    • a. Statistics
    • b. History
    • c. Institutions
  • 2. Theoretical-Includes ideas:
    • a. Concepts
    • b. Models
    • c. Variables
factual tools of econ reasoning
Factual Tools of Econ Reasoning
  • 1. Statistics-2 types:
    • a. Data-Numbers used in Econ measurements
    • Ex. Production, Prices, Interest Rates, etc.
    • b. Methods to find data (Finding Average)
  • Necessary to fully understand situation to find best solution
  • 2. History-Using knowledge gained from stories of past to help influence present and future
    • Ex. Developed Countries using harmful pesticides when they were younger and less wealthy (Short term gain but long term damage
    • Should Less Developed Countries do same?
  • 3. Institutions-Decision making units, established practices/ laws and cultural behavior
  • Ex. Gov’t Policy, Internal Revenue Service, Military, Media, etc.
theoretical tools of econ reasoning
Theoretical Tools of Econ Reasoning
  • 1. Concepts-Word/ Phrase expressing Econ idea
  • 2. Models-Simplified representation of the real world showing relationship between 2 or more variables
    • Ex. Words, Math Formulas, Graphs, etc.
  • Variables-Quantity that changes due to changes in other related items
    • Ex. Price of Tractor and Amount of People Buying Tractor
why use graphs
Why Use Graphs?
  • Answer = Adds sense/ meaning to information
    • If you can understand it, you are better able to change it
types of graphs
Types of Graphs
  • 1. Charts-Graph that represents data/ information visually
    • A. Pie Chart- a circular chart showing percentages
    • B. Time Series-Line graph showing changes in value over time
    • C. Column Chart-chart using columns to show value
    • D. Bar Chart-Column chart turned sideways
    • E. Area Chart- chart using area of space to represent value
  • 2. Diagrams-Visual graph/model that show relationship between 2 or more variables
    • May or may not have values that can actually be measured
direct inverse relationships
Direct & Inverse Relationships
  • Direct-Variable Relationship where as one’s value increase/ decrease so does the other (Same for Both)
  • Inverse-Variable relationship where as one’s value increases the other decreases (Opposite)
free vs econ goods
Free vs. Econ Goods
  • Free Good-Production/ consumption good that does not have direct cost
  • Economic Good-Any good/ service that sells for price (Not free)
what s an economist do econ reasoning
What’s an Economist Do?: Econ Reasoning
  • 1. Analysis-Through research assumes how people/ groups will behave
    • Explain events
  • 2. Predict outcomes of what will happen under different circumstances
    • Ex. What will happen if people chose A over B?
  • 3. Value Judgment- Which is best choice to make? Why?
    • What’s more important, people or profits?
    • Recommend policy