Goal 7 intro

Goal 7

Introduction to Economics

What is Economics?

• Economics: the study of how people seek to satisfy their needs and wants by making choices

THE FACTORS OFPRODUCTION

GOAL 7: Economics

There are 4 Factors of Production:

• Land or Natural Resources

• Capital

• Labor

• Entrepreneurship

Land or Natural Resources

• Materials that are NATURALLY MADE and transformed into something else

• Examples:• Oil• Timber• Land• Crops• Natural gas• Milk

2 Types of Natural Resources• RENEWABLE– Can be replaced

or renewed or recycled

– ex: wood, water, crops

• NON-RENEWABLE– Once used,

resource is gone– Ex: Oil, Natural

Gas, Gold

LABOR

• PEOPLE who work to produce a good or service

• Example:– Construction worker– Teacher– Line cook

CAPITAL

• MAN MADE instruments that assist in making something else

• Examples:– Hammer– Robot– Book– Computer

Human Capital• Investment

in education or training for a laborer for more productive laborers

Entrepreneurs• People who RISK

time and money ($) to start their own business

• Examples:– Oprah– Ben & Jerry’s– Little girl selling

Lemonade– Donald Trump

Needs v. Wants

• Need: something people need that is necessary for survival (ex: air, food, shelter)

• Want: an item we desire but that is not essential to survival

Three Basic Economic Questions

What good and services should be produced?– Should money go to schools or a new city park??

• How should these goods and services be produced?– How much of the product are we going to produce?

• For whom should these goods and services be produced?– After goods and services have been produced, society must

determine how goods and services should be distributed among members of society…use a price system in the US

Every CHOICE you make has a…

• Monetary cost: price you paid for a decision ($)

• Trade off: ALL of the alternative choices

• Opportunity cost: the best alternative, your second choice

Scenario #1

• Dondrick studied for his exam instead of watching American Idol or doing his laundry.

Trade-offs:•American Idol,

laundry

Monetary cost:•none

Opportunity cost:•American Idol

Scenario #2

• Iesha has decided to go to college instead of getting a full-time job or joining the Navy.

Trade-offs Job, Navy

Monetary costs:

Money paid for college

Opportunity cost: job

• B’day gift, jacket

Trade-offs:

• Price of the Jordans

Monetary cost: • B’day gift for mom

Opportunity cost:

Scenario #3

• Michael bought a pair of Air Jordans instead of buying his mom a birthday gift or a new jacket for himself.

Productivity

How does an assembly line increase a company’s profits?

• Divides up the tasks to make a product and allows a worker to specialize in a task to make it faster• More product = more profit

Division of Labor

•Dividing up the tasks required to make a product.

Specialization

• Giving a worker a specific task to complete• Worker becomes a professional in the task

Automation

• creating a product with the assistance of machinery

Types of Workers

• Blue Collar:– wage-earning workers who wear work clothes ex:

mechanics, miners, maids • White Collar:

– office and professional workers who do not wear a uniform. Ex: lawyer, teacher, doctor

Types of Workers

• Skilled workers:– Workers who get special training to do their job,

earn more for their education– Ex: mechanic, teacher, doctor

• Unskilled workers:– workers do not have any special training that

allows them to earn more than a basic wage – Ex: fast food employee, cashier

What will happen to a company if they add too many factors of production?

• Law of diminishing returns– At a certain point adding another factor of

production will make a company less productive (lose $)

• Graph– What do you think this would look like?

Law of Diminishing Returns

• The tendency for a continuing effort toward a particular goal to decline in effectiveness after a certain amount of success has been achieved.

Supply and Demand

How can comparative advantage influence what a company or country produces?

• Comparative advantage: a country, individual, or company can produce a product at a lower cost than a competitor

• Produce products for less money to make a greater profit

TYPES OF ECONOMIES

3 Basic Economic Questions

• What to produce?• How to produce?• For whom to produce?

• What is produced?– Traditional items are

produced according to custom

• How is it produced?– According to custom,

no specialization or division of labor

• For whom is it produced?– For the local people

Traditional Economy

Command / Planned Economy

• What is produced?– Gov’t decides what they

believe to be best for the whole country.

• How is it produced?– Gov’t owns companies,

dictate how to make things. Use specialization and division of labor

• For whom is it produced?– Produce only what is needed

for the country

Market Economy• What is produced?– Whatever sellers want to

produce. Supply and demand are the main factors in decision making

• How is it produced?– Competition exists.

Business is run for profit. Specialization, division of labor used.

• For whom is it produced?– Produce for whoever will

buy in your country and throughout the world

Mixed Economy

• Most countries have mixed economies. They combine aspects of the 3 economies to make what is best for them.

• Ex: United States– mostly market (individuals buy and sell)– Some command (gov’t rules and restrictions)

– Little traditional (Native American, Amish communities)