Chapter One Fundamental Economic Concepts
Jan 13, 2016
Chapter OneFundamental Economic Concepts
Chapter OneLesson Two
Basic Economic Concepts
Goods, Services, and Consumers
What are Goods?o Anything useful and tangible (Can actually touch)o i.e. – car, book, clothing, etc.o Some goods are intended for final use by us – these are
called consumer goods• Durable vs. nondurable goods
Serviceso Any work that is performed for someone
Consumerso When we use our goods and services to satisfy our
wants and needs.
Value, Utility, and Wealth
Everything has value – the worth that can be expressed in dollars and cents
Paradox of Valueo Necessities vs. non necessities and their worth
Utilityo In order for something to have value it must have utility, or
the capacity to be useful and provide satisfactiono Not measurable
• Varies from person to person
Value and Wealtho The emphasis of monetary value is important to economists.o The value of something in dollars and cents is easily
understood
Value, Utility, and Wealth
Wealtho Can be individual or nationalo The accumulation of products tangible, scarce, useful, and
transferable to another person is wealtho Services are not considered wealtho Wealth we generate is made possible by the circular flow of
economicso Key feature = Markets – a location where buyers and sellers can
exchange a certain product.
Adam Smith, who wrote “The Wealth of Nations” in 1776 said“if a country’s material possessions were taken away, its
people, through their efforts and skills, could restore these possessions. On the other hand, if a country’s people were taken away, its wealth would deteriorate.”
Circular Flow of Economic Activity
Factor Markets
Product Markets
Individuals
Businesses
Income from
resources
Payments for
resources
Business income
Consumer spending
Goods/
services
Buy productive resources
Four factors of production
Circular Flow of Economic Activity
ACTIVITY Working in your groups, determine the meaning
of the circular flow diagram. One person will write down your groups thoughts
and comments. In conclusion, you must answer this question:
o As a consumer, what role do you play in the circular flow of economic activity?
Productivity and Economic Growth
What do you think happens when the circular flow becomes larger??
When our nations productivity increases over time we see economic growtho What is productivity?o The measure of the amount of goods and services
produced within a given amount time with a given amount of resources.• Only increase though when more can be produced with the
same amount of resources.
Productivity and Economic Growth
Define Human Capital?o The sum of peoples skills, abilities, andlth, knowledge,
and motivationo Question – How can the government orBusiness invest in Human Capital?
Government – Providing education and healthcareBusiness – training or other programs that improve the skills of their workers.
Productivity and Economic Growth
Division of Labor and Specializationo Dividing a task into different parts can cause the task to
be completed more efficientlyo Deciding who can do things better, or specialize, is also
more efficiento Examples????
Economic Interdependenceo We are as dependent on other countries as they are on
uso How can this be good?
• Gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.
Productivity and Economic Growth
Activity o Write about ways that you are dependent on others and
how others are dependent on you. o Circle which examples show economic interdependence
and explain why?
Chapter OneLesson Three
Economic Choices and Decision Making
Trade-Offs and Opportunity Costs
Trade-Offso -Alternate choiceso Decision making grid
• Forces you to consider alternatives
Opportunity Costso Cost of the next-best alternativeo Everything else is a trade-off
Trade-Offs and Opportunity Costs
Blank San Francisco Los Angeles SeattleClimateCost of livingNumber of game companiesCrime rateIt's a pleasant-looking cityDistance from family
Production PossibilitiesC
ar
s
Clothing
When the production of one item increases, the other item decreases
Opportunity Cost
Thinking like an Economist
Economic Modelso A simplified equation, graph, or figure showing how
something works.o All economic models are based on assumptions – things
we think are trueo Can be revisedo If assumptions are correct, we can use againo If assumptions are wrong, chart can be changed to make
better predictions.
Cost-Benefit Analysis What is it?
o A way of comparing the costs of an action to the benefits received
o As a group, describe a scenario in which you would use a cost-benefit analysis to determine worth or value?????