Dec 14, 2015
1. Explain the fundamental economic problem.
2. Examine the 3 basic economic questions that every society must answer.
3. List & give examples of the 4 factors of production.
Economics: Study of how people try to satisfy unlimited wants with limited resources
**#1 Rule of Economics: TINSTAAFL (means?)
Most people want more than they already have
(Don’t you?!)
Basic Economic Problem:
SCARCITY – condition resulting from society not having enough resources to produce all the things
people would like to have Needs vs. Wants
3 BASIC QUESTIONS EVERY SOCIETY MUST ANSWER:
1. What to produce
2. How to produce
3. For whom are the products are being produced
4. Entrepreneurs
Risk takers insearch of a
new business
1. Explain the relationship between goods, services, scarcity, value, utility & wealth.
2. Understand the circular flow of economic activity.
• economic product good
• consumer good capital good
• service value
• paradox of value utility
• wealth market
• factor market product market
• economic growth productivity
• human capital
Economic Products - goods & services that are useful, relatively scarce & transferable4 Types of Goods (give 4 examples of each):
1. Consumer - used by?2. Capital – used to?3. Durable – lasts for?4. Nondurable – lasts for?Service – work performed by someone
Econ. products must have 2 things:
1.Value – worth expressed in dollars & centsParadox of value – some necessities have little value whereas some non-necessities have higher value
Ex. “diamond-water paradox”
Why? Scarcity!
Economic products must have (cont’d)
2. Utility – capacity to be useful & provide satisfaction (not measurable, different for everyone)
Wealth – sum of tangible goods that are scarce, useful & transferable from one to another (services not included)
Circular Flow of Economic Activity
Markets – locations/mechanisms that allow buyers & sellers to trade (can be local, regional, national, global)Factor Market – where productive resources are bought & sold (where you make your $)
Product Market – where goods & services are sold (where you spend your $)
Economic growth occurs when a nation’s total output of goods and services increases over time
Productivity – measure of the amount of output produced by a given amount of inputs in a specific time period
Investing in human capital (sum of the skills, abilities, health & motivation of people) contributes to increasing productivity
Matt has 2 choices for a summer job. The 1st opportunity is at a computer manufacturer, where he would earn $10.25 an hour. The 2nd is with a landscaping company, where he could work & have lunch with 3 of his closest friends every day. That job would pay $8.65 an hour. For one 40-hour workweek, what would be the opportunity cost, in dollars, of accepting the landscaping job? What would be the opportunity cost of accepting the manufacturing job?