What is Economics?

Section 1: How Economic Systems workMr. Gibbs

Spring 2009

Economic Choices

• Economics is the study of:– how we make decisions in a world which resources

are limited.– How things are made, bought, sold, used

• Well informed American Citizens MUST CHOOSE HOW TO SPEND THEIR MONEY WISELY

• Well informed American Citizens DO NOT SPEND MORE THAN THEY HAVE….

Needs vs. Wants

• Needs – required for survival (food, clothing, shelter)

• Wants – things we would “like to have”– (entertainment, vacations, etc.)

– There is not enough resources in this world to provide everyone with all of their wants and needs (some people don’t even get their needs!)

Need or Want?

Need or Want?

Need or Want?

Need or Want?

Economics: a Defintion

• Economics is the study of:– how we make decisions in a world which

resources are limited.– How things are made, bought, sold, used

• Economics is divided into 2 Branches: Micro and Macro

Microeconomics

• Small picture• Behavior and decision making of small units

such as individuals and businesses• Helps explain how some of the individual

decisions are made within a small budget

MACROeconomics

• Big picture• Looks at the economy as a whole and how the

decisions of LARGE units (gov’t, industries, societies)

Micro and Macro

• These are “economic models”

• And economic model is a theory that tries to explain human economic behavior

Economic System

• Economic System – way of producing the things people want and need.

FREE ENTERPISE CAPITALISM• Businesses are allowed to compete for profit

with a minimum of government interference.

Socialism

• Government ownership and administration of the means of production and distribution of goods, and a society characterized by equality for all individuals, with equal compensation.

The Problem of Scarcity

• The limits on, or scarcity of, resources force people to make careful economic decisions.

• Resources – the things used in making goods and producing services. Resources can range from tools to wood to human resources

Human Resources

• A.k.a. – Human Capital

• The people who provide the necessary labor, skills, and knowledge to produce the Country’s goods and services.

Scarcity and the Need to Choose

• Scarcity occurs when we do not have enough resources to produce all the things we would like to have.

No Country has all the resources it needs….the result is scarcity.

Because of Scarcity – we have to make choices among alternatives….

People Have Limited Resources as well….

20.00 Allowance

What to Produce?!?!?!?!

• Look at the wants and needs of the community (Micro) or Country (Macro)…

Should be build….a stadium? Or re-pave the roads? Or a new school?

Should we spend money on….Weapons for our nation’s defense? or Services for the Handicapped?

HOW TO PRODUCE

• Even more choices to make….

• Businesses need to produce as cheaply as possible….

Guy #1: We need oil. Guy # 2: Cool. Guy # 1: How do we get it.Guy # 2: Drill in Alaska.Guy # 1: Can’t. It is environmentally protected.Guy #2: Okay. Let’s buy it from the Saudis.Guy # 1: Can’t. Too much dependence on foreign oil. Funding terrorists.Guy #2: Okay. Lets drill off shore in the Gulf of Mexico.Guy # 1: Grey Area. Waiting to hear from Obama.Guy # 2: What about Alaska? We could Drill there.Guy # 1: …

For WHOM to Produce?!?!?!

• How will they be distributed among the people?

• Who gets the new cars? Where do we build the new school?

• The Price System….– Based on a “fixed price” or a “free price”