UNIT 1 - EconomicsUNIT 1 Final Review Three Fundamental Questions of Economics WHAT to produce HOW...
Transcript of UNIT 1 - EconomicsUNIT 1 Final Review Three Fundamental Questions of Economics WHAT to produce HOW...
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UNIT 1Final Review
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Three Fundamental Questions of Economics
WHAT to produce
HOW to produce
FOR WHOM to produce
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Need vs. Want
Need: basic requirement for survival
ex) food, clothing, shelter
Want: way of expressing a need
ex) wanting a Chipotle burrito to satisfy need for nourishment
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Resources: Factors of Production
Land
Labor
Capital
Entrepreneurship
Technology
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The Biggest Challenge of Economics: Scarcity
We do not have enough resources, time, money, etc. to get everything we want.
We have to make choices on how to allocate resources.
Unlimited wants vs limited resources
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Value & Paradox of ValueValue: monetary worth ($). Has utility + is scarce
Paradox of Value: when some necessities, such as water, have little monetary value, whereas non-necessities, such as diamonds, have higher value
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So What Exactly is Economics?
The study of how people and nations make choices about how to use scarce resources to fit their needs and wants.
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Traditional Economy❖ Allocation of scarce
resources is based on ritual, habit, custom
❖ Individuals have little say over role in society & economy
❖ Tend to be more family-centered
❖ Small-knit communities & tribes
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Command Economy❖ The GOVERNMENT owns all resources
❖ The GOVERNMENT answers the three fundamental economic questions
❖ People don’t need to worry about making profits
NO Profit means
NOIncentives
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Market Economy❖ Individuals in the Market own resources & answers
three fundamental questions
❖ Market Economy is driven by:
❖ Competition
❖ Profit Incentives
❖ Self-Interest
❖ Laissez-faire & invisible hand
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Market Economy
❖ Laissez-Faire: Hands Off !
❖ Belief that the economy will function best without government intervention
❖ An invisible hand guides the Market to make best decisions
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Mixed Economy❖ Combination of both Market and Command Economy
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Trade-offsAll the alternatives when a choice or decision is made
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Opportunity CostThe next best alternative that had to be given up for the alternative that was chosen
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Opportunity Cost
Options: 1) Study all Night or 2) Go to Sleep
Choice: Study All Night
Opportunity Cost: Getting Enough Sleep
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Opportunity BenefitWhat is gained when a decision or choice is made
Ex) The opportunity benefit of doing your economics homework instead of playing video games is a better grade in economics.
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Economic & Social Goals• Economic Freedom
• Economic Efficiency
• Economic Equity
• Economic Security
• Full Employment
• Price Stability
• Economic Growth
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Capitalism & Free Enterprise•Capitalism
•Private citizens own factors of production
•Free Enterprise
•Competition flourishes with a minimum of government interference
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Characteristics of Free Enterprise
•Economic Freedom
•Voluntary Exchange
•Private Property Rights
•Profit Motive
•Competition
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Circular Flow of the Economy