Introduction to Economics

1. Introduction to Economics By: Mrs. Whittaker

2. I. What do Economists study? • What goods and services are to be produced (and in what amounts)? • By what means are these goods and services to be produced (using what combinations of the various substitutable factors of production)? • How are the goods and services that are produced to be distributed among the individual members and groups in the society's population?

3. II. Economic Terminology • Economics branch of the social sciences concerned primarily w/ analyzing & explaining human behavior in making decisions about the allocation of scarce resources • Scarcity  condition where there is less of something available than some people would like to have if they could have them at no cost to themselves • Gross Domestic Product (GDP)  estimate of the total money value of all the final goods & services produced in a given 1-year period using the factors of production located w/in a particular country's borders • Budget  statement of a government's planned or expected financial position for a specified period of time (usually 1 yr.) • Market  coming together of a sizable number of merchants & prospective customers at a pre-arranged time & place for the purpose of striking deals to buy & sell a variety of goods and services • Black Market  market in which certain goods or services are routinely traded in a manner contrary to the laws or regulations of the govn’t in power

4. Macroeconomics  subdivision of economics that studies and strives to explain the functioning of the economy as a whole Examines: total output of the economy overall level of un/employment movements in the avg. level of prices total savings & investment total consumption Main Focus  analysis of the ways in which conscious govn’t policies (and the unintended secondary consequences of these policies) can influence the overall "economic health" of the country for good & bad Microeconomics  subdivision of economics that studies the behavior of individual households & firms Examines the interaction through markets: how prices and levels of output of individual products are determined in these markets the interconnections by which different markets affect each other how the price mechanism allocates resources & distributes income III. Macroeconomics vs. Microeconomics

5. IV. Supply • Supply willingness & ability of potential sellers to offer various specific amt.s of a good/service for sale at each of a variety of alt. prices during a particular time period • Law of Supply Other things being held constant, the higher the price of a good/service, the lg.er the quantity of that good/service that will be offered for sale in a particular time period • Supply Curve  graphical representation of a supply schedule • Vertical axis = price • Horizontal axis = number of units of the good/service supplied • slopes upwards from left to right

6. V. Demand • Demand  willingness & ability of the people w/in a market area to purchase particular amt.s of a good/service at a variety of alt. prices during a specified time pd. • Law of Demand Other things being held constant, the lower the price of a good/service, the greater the quantity of it that will be demanded by purchasers at any given time • Demand Curve  A graphical representation of a demand schedule • Vertical Axis = price • Horizontal Axis = number of units of the good or service demanded • slopes downwards from left to right

7. The graph depicts a right-shift in demand from D1 to D2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S) • An out- or right- shift in supply changes the equilibrium price and quantity

8. VI. Scarcity & Choice • Scarcity limits both individuals & society • As a society, limited resources (such as manpower, machinery, and natural resources) fix a max. on the amt. of goods & services that can be produced • Scarcity requires choice • Opportunity Cost cost of any choice is the option(s) that a person gives up • Comparing the benefits of option A w/ the benefits of option B & choosing the one w/ the highest benefit • Ex.  if you gave up the option of playing a computer game to read this text, the cost of reading this text is the enjoyment you would have received playing the game

9. Estimate of the total money value of all the final goods & services produced in a given 1-yr. pd. using the factors of production located w/in a particular country's borders measures a country’s economic activity regardless of who owns the productive assets in that country use to measure the standard of living in a country Used by most industrialized countries An estimate of the total money value of all the final goods and services produced in a given 1-yr. pd. by the factors of production owned by a particular country's residents measured by totaling all personal spending, all government spending, and all investment spending by a nation's industry both domestically and all over the world Not used that much anymore VII. GDP vs. GNP

10. Economic system in which individuals, rather than govn’t, make the majority of decisions regarding economic activities & transactions market in which certain goods/services are routinely traded in a manner contrary to the laws or regulations of the govn’t in power VIII. Free Market vs. Black Market

11. References • Economics Glossary • Intro. to Economics • Economics Overview • Microsoft Encarta Encyclopedia 2004