1. The Science of
Economics

2.  Microeconomics is the
branch of economics
that examines the
choices of individuals
concerning one product,
one firm, or one
industry.
 Macroeconomics is the
branch of economics
that examines the
behavior of the whole
economy at once.
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3.  Economics is the study of how people try to
satisfy what appears to be seemingly
unlimited and competing wants through the
careful use of relatively scarce resources.

4.  The fundamental economic
problem facing all societies is
Scarcity.
Scarcity is the condition that
results for society not having
enough resources to produce all
the things people would like to
have.
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5.  A need is a basic
requirement for
survival and includes
food, water and
shelter.
 A want is a way of
expressing a need.
Since a variety of wants
can satisfy a need,
wants tend to be
broader than needs.

6.  There is no such thing as a
free lunch

7. How did this product
get to the table in
your house?
List from the farmer
to the grocer.
How many people touched this product?
http://www.youtube.com/watch?v=l-bflQuRLbU

8. Seemingly
Unlimited
Wants
Limited
Resources
SCARCITY
CHOICES
WHAT
To Produce
HOW
To Produce
FOR WHOM
To Produce
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9.  You are the leaders of a third world country. You
have a major problem: You do not have enough
resources to feed and take care of the healthcare
needs of your people. You must make decisions.
Who do you feed or provide healthcare for?
 Food Healthcare
 1 - 10 years old 30% ? ?
 11 – 60 years old 50% ? ?
 61 – 85 years old 20% ? ?
 You cannot exceed 100% You have a population of
1 million.

10.  What to Produce
◦ Should they produce
military goods or food?
 How to Produce
◦ Should they use
equipment and few
people or use more
people and less
equipment?
 For Whom to Produce
◦ How are the things
produced allocated?

11. All the processes involved in making
wealth and bringing it from its place
of origin to the ultimate consumer.
Land
Labor
Capital
Entrepreneurship
(Management )

12.  The entire material universe exclusive of
people and their products
◦ Everything physical (other than human beings)
which is not the result of human effort is within the
economic definition of land.
 This concept thus includes not merely the dry surface of
the earth, but all natural materials, forces and
opportunities.
 The trees in a virgin forest are land; in a cultivated forest
they are wealth.
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13.  All human exertion in the production
of wealth
◦ All who participate in production by
their mental and/or physical effort are
laborers in the economic sense. This
would include their efforts, abilities and
skills.
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14.  Wealth used to produce more wealth, or
wealth in the course of exchange.
◦ A machine is wealth. If used to produce shoes
or other wealth, the machine is wealth that is
capital (capital good). So also would a
merchant’s stock (inventory) of goods in trade
be capital because the final exchange is not
been completed.
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15.  Some economist include workers that
have a special status because they are
the innovators responsible for much of
the change in our economy.
 An entrepreneur is a risk-taker in search
of profits.
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16.  When all factors of production
(land, labor, capital and
entrepreneurship) are present,
production, or the process of
creating goods and services, can
take place.
 Note!! Everything we produce
require these factors.
 GDP –The total production of
goods and services created within
a country during a calendar year.
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17.  Use the pictures below. What are the factors
depicted?

18.  Description
◦ Describing Economic Activity
 Analysis
◦ Trying to determine “why”
something happens
 Explanation
◦ Using Economic theory to
explain how things work
 Prediction
◦ Using Economic events to
predict future economic activity

19.  Basic Economic Concepts
◦ Goods – items that are economically useful or
satisfies an economic want
 Consumer Goods – used by individuals
 Capital Good – Goods used to produce more goods
◦ Services – work that is preformed for someone
◦ Consumer(s) – a person who uses a good or
service
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20.  Why are some necessities, such as water,
have little monetary value while some
non-necessities like diamonds, have a
much higher value?
◦ Economist know that scarcity is required for
value.

21. ◦ Value – worth that can be expressed in dollars
◦ Utility – the capacity to be useful and provide
satisfaction
◦ Wealth – is the accumulation of products that are
tangible, scarce, useful, and transferable from
one person to another.
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22.  A market is a mechanism that allows buyers
and sellers to exchange a certain economic
product.
◦ Factor Markets – are where productive resources are
bought and sold.
◦ Product Markets – are where producers sell their
goods and services to consumers.
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23. Business
Income
Consumer
Spending
Product Markets
Factor Markets
Businesses Individuals
Payments for
Resources
Income from
Resources
Goods &
Services
Buy
Productive
Resources
Circular Flow
Sell
Land, Labor
Capital
Entrepreneurs
$
Supply
Purchases
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24. ◦ Economic growth occurs when a
nation’s total output of goods and
services increases over time.
◦ Economic productivity is a measure
of the amount of output produced
by a given amount of inputs during
a specific period of time.
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25.  Human Capital is the sum of the
skills, abilities, health, and
motivation of people.
◦ Government & Businesses can invest in
human capital (labor) by providing
education (training) and health care to
improve the skill and motivation of its
workers.

26.  Division of Labor takes place when work is
arranged so that individual workers do
fewer tasks than before.
 Specialization takes place when factors of
production perform tasks that they can do
relatively more efficiently than others.
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27.  Economic Interdependence
means that we rely on
others, and others rely on
us, to provide the goods
and services that we
consume.
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28.  Take a simple wooden pencil and list the
people that contributed to this item from its
conception to my classroom.
Economic Interdependence

29.  It is not from the benevolence of
the butcher, the brewer, or the
baker, that we expect our dinner,
but from their regard to their own
interest.
 Led by an invisible hand to promote
an end which was no part of his
intention. By pursuing his own
interest he frequently promotes that
of the society more effectually than
when he really intends to promote
it.

30. Getting cargo from point to point, on time
and in good condition

31.  Back in the 1700s, the British government paid
sea captains to take felons to Australia. About
a third of the males on one particularly horrific
voyage died. The rest arrived beaten, starved,
and sick. I mean, they were hobbling off, those
who were lucky enough to survive.

32.  This was a scandal back in England, so the
government tried to fix it with all different kinds
of rules. Force the captains to bring a doctor
along. Require them to bring lemons to prevent
scurvy. Have inspections. Raise captains’ salaries.
 The clergy begged the
captains, for humanity’s
sake, to take better care
of the prisoners.
No dice.
 None of it worked.

33.  Instead of paying for each prisoner that
walked on the ship in Great Britain, the
government should only pay for each
prisoner that walked off the ship in Australia.
And in fact, this was the suggestion which in
1793 was adopted and implemented. And
immediately, the survival rate shot up to 99%.

34.  Before the captains were paid to keep the
convicts alive, they had different incentives —
"like keep food from the prisoners, and then
sell the food in Australia,“ they were already
paid for the prisoners.
 The answer is to reward the captains for
keeping the passengers alive, and — voila! —
they arrive alive.

35.  Allocation
 What need will be satisfied?
 What resource will be used?
 How much of the resource will be
used?
 Trade-Offs
 Choosing among alternatives to satisfy
allocation
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36.  Every decision we make has its trade-offs or
alternative choices. When you make an
economic decision (a choice) opportunity cost
are incurred.
 Opportunity Cost
◦ The value of what you give up
when you make a choice.
 Opportunity Benefit
◦ The value of what you gain by
making that choice.

37.  The various combination of goods and
services that an economy can choose to
produce.
 When an economy is operating at full capacity
it is operating at maximum production. This
is also known as the production possibilities
frontier.
 Production possibilities help
us understand the concept
of opportunity cost.

38. Butter
Guns
A
D
E
B
70
60
50
40
30
20
10
0 0 100 200 300 400 500 600 700
C

39.  If you are operating at maximum production, the
only way to produce something new you must give
up the production of another item.
 If you have economic growth you can push the
curve outward allowing for more total production.
(Population Growth, Improving Technology, or growth in the Capital
Stock which are investments in factories, etc.)
 If you have idle resources (operating inside the
curve) you will be able to produce more of both
without giving up production.

40.  Cost benefit analysis is a way to look at the
benefit received from an economic action.
 A free enterprise economy is an economic
system where business and consumers
answer the majority of WHAT, HOW and
WHOM questions.
 Standard of Living is the quality of life based
on the possessions of the necessities and
luxuries that make life easier.

41.  Citizenship – The study of economics helps
us become better decision makers.
 The World – Economics provide a framework
for analysis – a structure that helps explain
how things are organized.