Economics : The Basics! Please take notes on the following slides in your Business notebook
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Transcript of Economics : The Basics! Please take notes on the following slides in your Business notebook
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Economics : The Basics!Please take notes on the following slides
in your Business notebook
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What is Economics? Economics-Social science which deals with scarce
resource allocation (use) for attaining: 1. society’s unlimited needs/ wants 2. greatest/ max. satisfaction for goods/ services
Foundation rests on 2 fundamental facts: 1. Resources = Limited 2. Scarcity-Needs/ wants for goods/ services are
unlimited but resources are limited! Scarcity = There are not enough goods to produce all
people’s wants (Not $ lack but resource lack) Most important fact of Econ!
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3 Society Sectors
1. Consumer-Person who buys product Consumer goods (Durable/ Non-Durable)
2. Business-Capital goods (Machinery, tools, factories, etc.)
3. Government-Public goods (Parks, schools, highways, etc.)
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Basic Terminology 1. Need-Necessity for life (Food, shelter, etc.) 2. Want-Anything for which is not need (Luxury) Note: Need and Want are UNLIMITED 3. Goods-Material (Clothing, automobile, food,
boat, etc.) 4. Service-Activity (Haircut, legal advice, taxi
ride, etc.) 5. Resources-(Factors/ Means of Production)
Inputs that go into goods/ services production Ex. Natural resources, labor, knowledge and capital Resources = LIMITED
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4 Resource Categories
1. Land-(“Nature’s Gifts”) Anything given by Mother Nature that is used in goods/ services production Ex. Territory, Natural Resources (Oil, timber, iron ore,
water, etc.) 2. Labor-Man’s physical/ mental capabilities which
are used in goods/ services production 3. Capital-Anything manmade used in goods/ service
production Ex. Machinery, tools, factories, etc. Financial Capital-$ used to buy tools/ equipment used in
production 4. Entrepreneurial Ability-Combines land, labor,
capital into goods/ services production Entrepreneur-Innovator, risk taker, and/or manager
(Owner) looking to make profits
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What’s the Goal of Economics? Answer: Use scarce resources efficiently in
effort to attain satisfaction for society’s unlimited needs, wants for goods/ services Do best w/ what you have People have unlimited needs and wants, and
using resources wisely to suit this issue Societies must economize
Economize-Gain society’s greatest satisfaction for needs/ wants through: a. Full Employment-All resources employed b. Full Production-Resources are assigned/
combined properly
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What Must Societies Avoid? 1. Underemployment-All resources are
not employed in production 2. Underproduction-Resources are not
assigned/ combined properly Note: Again, goal of economizing is Full
Employment and Full Production!
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2 Broad Areas of Study in Econ
1. Macroeconomics-Overall econ activity/ interaction between major economy sectors
2. Microeconomics-Individual unit’s activity in economy
vs.
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3 Basic Questions of Econ 1. What to produce?
2. How to produce?
3. For whom to produce?
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4 Steps of Scientific Method 1. Observe-Look at world around you 2. Hypothesis-Make educated guess
based on observation 3. Test Hypothesis-Set up experiment
to see if hypothesis is accurate or not Perform multiple times under similar
conditions to find cause and effect 4. Accept, Revise or Reject Hypothesis
Was your hypothesis right or wrong? Why?
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Looking at the 2 Types of Tools of Economic Reasoning
1. Factual-Includes measurable units: a. Statistics b. History c. Institutions
2. Theoretical-Includes ideas: a. Concepts b. Models c. Variables
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Factual Tools of Econ Reasoning 1. Statistics-2 types:
a. Data-Numbers used in Econ measurements Ex. Production, Prices, Interest Rates, etc. b. Methods to find data (Finding Average)
Necessary to fully understand situation to find best solution 2. History-Using knowledge gained from stories of past to
help influence present and future Ex. Developed Countries using harmful pesticides when they were
younger and less wealthy (Short term gain but long term damage Should Less Developed Countries do same?
3. Institutions-Decision making units, established practices/ laws and cultural behavior
Ex. Gov’t Policy, Internal Revenue Service, Military, Media, etc.
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Theoretical Tools of Econ Reasoning 1. Concepts-Word/ Phrase expressing Econ idea 2. Models-Simplified representation of the real
world showing relationship between 2 or more variables Ex. Words, Math Formulas, Graphs, etc.
Variables-Quantity that changes due to changes in other related items Ex. Price of Tractor and Amount of People Buying
Tractor
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Why Use Graphs?
Answer = Adds sense/ meaning to information If you can understand it, you are better
able to change it
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Types of Graphs 1. Charts-Graph that represents data/
information visually A. Pie Chart- a circular chart showing percentages B. Time Series-Line graph showing changes in value
over time C. Column Chart-chart using columns to show value D. Bar Chart-Column chart turned sideways E. Area Chart- chart using area of space to represent
value 2. Diagrams-Visual graph/model that show
relationship between 2 or more variables May or may not have values that can actually be
measured
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Pie Chart
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Time Series
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Column Chart
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Bar Chart
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Area Chart
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Diagram
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Direct & Inverse Relationships Direct-Variable Relationship where as
one’s value increase/ decrease so does the other (Same for Both)
Inverse-Variable relationship where as one’s value increases the other decreases (Opposite)
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Free vs. Econ Goods
Free Good-Production/ consumption good that does not have direct cost
Economic Good-Any good/ service that sells for price (Not free)
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What’s an Economist Do?: Econ Reasoning
1. Analysis-Through research assumes how people/ groups will behave Explain events
2. Predict outcomes of what will happen under different circumstances Ex. What will happen if people chose A over B?
3. Value Judgment- Which is best choice to make? Why? What’s more important, people or profits? Recommend policy
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Any Questions?