What Is What Is Economics?Economics?Chapter 1Chapter 1

Goals & ObjectivesGoals & Objectives

1.1. Fundamental Economic Problem.Fundamental Economic Problem.

2.2. 3 Basic Economic Questions.3 Basic Economic Questions.

3.3. Relationship among: Value, Utility, Relationship among: Value, Utility, Wealth, Scarcity.Wealth, Scarcity.

4.4. Construct of Economic Activity.Construct of Economic Activity.

5.5. Trade-offs & Opportunity costs.Trade-offs & Opportunity costs.

The Fundamental Economic The Fundamental Economic Problem: ScarcityProblem: Scarcity

Societal Wants vs. Individual NeedsSocietal Wants vs. Individual Needs

SCARCITY: SCARCITY: Free Markets or Socialism Free Markets or Socialism

ECONOMICS—people and their wants ECONOMICS—people and their wants and needs…The Role of Governmentand needs…The Role of Government

ScarcityScarcity

ScarcityScarcity

List scarce resources: List scarce resources:

Scarcity+Socialism= WAR!Scarcity+Socialism= WAR! Japan WWIJapan WWI Germany WWI; WWIIGermany WWI; WWII Communist RevolutionsCommunist Revolutions Socialism & PovertySocialism & Poverty

Modern Day Socialism & Elite Modern Day Socialism & Elite System of GovernmentSystem of Government

TINSTAAFLTINSTAAFL

““There is no such thing as a free lunch!There is no such thing as a free lunch!”” Explain: food, shelter, insurance, clothing, Explain: food, shelter, insurance, clothing,

gas, water, cell phones, subsidies, bailouts, gas, water, cell phones, subsidies, bailouts, etc…etc…

The Role of Government: the redistribution The Role of Government: the redistribution of wealth….Socialism protecting the Elite of wealth….Socialism protecting the Elite Class from competitionClass from competition

Gov’t Handout vs Free EnterpriseGov’t Handout vs Free Enterprise

TINSTAAFLTINSTAAFL

1.1. ENTITLEMENTSENTITLEMENTS: Who Pays? Who : Who Pays? Who Benefits?Benefits?

1.1. Welfare, Food Stamps, Medicaid, Obamacare, Welfare, Food Stamps, Medicaid, Obamacare, SSD, SSI, Pre-K, Subsidized: Housing, Cell SSD, SSI, Pre-K, Subsidized: Housing, Cell Phones, College, etc… Phones, College, etc…

2.2. SubsidiesSubsidies: Who Pays? Who Benefits?: Who Pays? Who Benefits?

3.3. Bail-outsBail-outs: Who Pays? Who Benefits?: Who Pays? Who Benefits?

Welfare vs. WorkersWelfare vs. Workers

3 Economic Questions all 3 Economic Questions all Societies must answerSocieties must answer

WHAT TO PRODUCE?..WHAT TO PRODUCE?..

HOW TO PRODUCE?..HOW TO PRODUCE?..

FOR WHOM TO PRODUCE?..FOR WHOM TO PRODUCE?..

ECONOMIC SYSTEMSECONOMIC SYSTEMS

Capitalism/Capitalism/Free Markets: Free Markets:

WhatWhat?: Individual?: Individual

HowHow?: Individual?: Individual

For Whom?For Whom?: : IndividualIndividual

Communism/ Communism/ SocialismSocialism

WhatWhat?: ?: Government or Elite Government or Elite ClassClass

HowHow?: Government ?: Government or Elite Classor Elite Class

For WhomFor Whom?: ?: Government or Elite Government or Elite ClassClass

Economic ComparisonEconomic Comparison

4 factors of production4 factors of production

1.1. LandLand…explain how it causes production…explain how it causes production

2. 2. CapitalCapital….explain how….explain how

1.1. Financial capital:Financial capital:

2.2. Capital GoodsCapital Goods

3. Labor3. Labor…explain how it causes production…explain how it causes production

4. Entrepreneurs: 4. Entrepreneurs: Key Component to ProducationKey Component to Producation

1.1. Societies that possess all factors of production Societies that possess all factors of production are wealthy are wealthy

1.1. Adam Smith: Adam Smith: Causes of WealthCauses of Wealth

Obama & New OrderObama & New Order

GDPGDP

GROSS DOMESTIC PRODUCTGROSS DOMESTIC PRODUCT: total : total #/amount of goods and services produced #/amount of goods and services produced in the U.S. marketin the U.S. marketEconomic ProductsEconomic Products: : Goods…Goods… Consumer goods…Consumer goods… Capital goods….Capital goods…. Services….Services…. Consumers….Consumers….

Value, Utility, WealthValue, Utility, Wealth

Diamonds vs. Water? Diamonds vs. Water? – Which has more Value?Which has more Value?– Which has more Utility?Which has more Utility?– Which has/creates more Wealth?Which has/creates more Wealth?

Useful:Useful:

Wealth: Wealth:

Paradox of ValueParadox of Value: Scarcity by itself : Scarcity by itself is not enough to create valueis not enough to create value

Paradox of ValueParadox of Value

Types of Productivity

• JIT THEORY (Just in time)

• Post WWII theory of production.

• Why? Free Trade agreements and an end to protective tariffs.

• JIC THEORY(Just in case)

• Pre WWII theory of production.

• Why? Article I Section 8 Clause 1: Duties, Imposts (Protective & Revenue Tariffs)

JIT vs. JIC Theory

Division of LaborDivision of Labor

• WagesWages and and SpecializationSpecialization of labor? of labor?– Free Markets reward specialization.Free Markets reward specialization.– Socialism marginalizes specialization.Socialism marginalizes specialization.

• High in service vs. Low in service High in service vs. Low in service ( Doctors and Check-out clerks)( Doctors and Check-out clerks)

• Why would industry convert to Why would industry convert to specialization of production?specialization of production?

Specialization & WagesSpecialization & Wages

Economic Economic InterdependenceInterdependence

•ExplainExplain: : ““the gain in productivity the gain in productivity and income as a result of increased and income as a result of increased specialization almost always offsets specialization almost always offsets the costs associated with the loss in the costs associated with the loss in self- sufficiencyself- sufficiency””..•Capital Goods Capital Goods & Efficiency: & Efficiency: Consumer CostsConsumer Costs

Adam SmithAdam Smith

Father of free markets and Father of free markets and ““capitalismcapitalism””

The Wealth of Nations (1776)The Wealth of Nations (1776)Radical ideas?Radical ideas?The Invisible HandThe Invisible HandLaissez-faireLaissez-faireRich (Aristocracy) vs. Competition Rich (Aristocracy) vs. Competition

Smith vs. Elite System of Smith vs. Elite System of Gov’tGov’t

Elite vs. Freedom to produceElite vs. Freedom to produce

Elite Gov’t ClassElite Gov’t Class MonarchyMonarchy DictatorshipDictatorship CommunismCommunism SocialismSocialism A Government:A Government:

What?What? How?How? For Whom?For Whom?

Individual FreedomIndividual Freedom Free EnterpriseFree Enterprise CapitalismCapitalism Laissez-faireLaissez-faire CompetitionCompetition InnovationInnovation CreativityCreativity Individual WealthIndividual Wealth

Economic ChoicesEconomic Choices

Trade-OffsTrade-Offs: :

GovGov’’t Bailoutst Bailouts

No GovNo Gov’’t Bailoutst Bailouts

EntitlementsEntitlements

No EntitlementsNo Entitlements

SubsidiesSubsidies

No SubsidiesNo Subsidies

Opportunity Opportunity CostsCosts: :

TimeTime

Free Trade/No Taxes Free Trade/No Taxes vs. High Standard of vs. High Standard of LivingLiving

Skilled vs. Unskilled Skilled vs. Unskilled immigrantsimmigrants

Free Enterprise SystemFree Enterprise System

Willing BuyerWilling Buyer

Willing SupplierWilling Supplier

Role of GovernmentRole of Government

Standard of Living: Standard of Living:

Adam SmithAdam Smith’’s laissez-faire policiess laissez-faire policies