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Fundamental economic concepts

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Fundamental economic concepts

  1. 1. Fundamental EconomicFundamental Economic ConceptsConcepts
  2. 2. EconomicsEconomics  The study of meeting peoples unlimitedThe study of meeting peoples unlimited wants and needs with scarce resources.wants and needs with scarce resources.
  3. 3. EconomyEconomy  How a society chooses to allocate itsHow a society chooses to allocate its scarce resources to the unlimited wants ofscarce resources to the unlimited wants of its people (there are many kinds ofits people (there are many kinds of economies).economies).  How do we do this in the U.S.?How do we do this in the U.S.?  How is it done in Cuba?How is it done in Cuba?
  4. 4. Purpose of EconomicsPurpose of Economics Goal is to describe,Goal is to describe, analyze, explain,analyze, explain, andand predictpredict economic activity.economic activity.
  5. 5. Biggest Economic Problem:Biggest Economic Problem: ScarcityScarcity  ALL RESOURCES ARE SCARCEALL RESOURCES ARE SCARCE  WE HAVE UNLIMITED WANTSWE HAVE UNLIMITED WANTS  There Is No Such Thing As A Free LunchThere Is No Such Thing As A Free Lunch
  6. 6. Factors of Production – The thingsFactors of Production – The things used to make other thingsused to make other things 1.1. LandLand (natural resources)(natural resources) 2.2. LaborLabor (human resources)(human resources) 3.3. CapitalCapital (non natural resources)(non natural resources) 4. Entrepreneurs4. Entrepreneurs Pencil FactoryPencil Factory
  7. 7. Because of scarcity producersBecause of scarcity producers must make choicesmust make choices 3 Basic Economic Questions3 Basic Economic Questions 1.1. What to produce?What to produce? 2.2. How to produce?How to produce? 3.3. For whom to produce?For whom to produce?
  8. 8. Because of Scarcity ConsumersBecause of Scarcity Consumers Must Make ChoicesMust Make Choices  Trade Off: Alternative choiceTrade Off: Alternative choice  Opportunity Cost: The cost of the nextOpportunity Cost: The cost of the next best alternative that was given up.best alternative that was given up.
  9. 9. Core Economic PrinciplesCore Economic Principles 1.1. Because of Scarcity People Must ChooseBecause of Scarcity People Must Choose 2.2. All Choices Involve CostsAll Choices Involve Costs 3.3. The Consequences/Rewards of Choices Lie inThe Consequences/Rewards of Choices Lie in the Futurethe Future 4.4. People Respond to Incentives in PredictablePeople Respond to Incentives in Predictable WaysWays
  10. 10. Econ VocabEcon Vocab  ProductivityProductivity  Measure of the amount of output produced with a setMeasure of the amount of output produced with a set amount of F.O.P. (Factors of Production)amount of F.O.P. (Factors of Production)  SpecializationSpecialization  Focusing on a specific task in order to be moreFocusing on a specific task in order to be more efficient.efficient.  Economic InterdependenceEconomic Interdependence  Because of specialization, each economy depends onBecause of specialization, each economy depends on other economies.other economies.
  11. 11. More Econ VocabMore Econ Vocab  ValueValue  Something has value if it can be expressed in termsSomething has value if it can be expressed in terms of dollars and cents.of dollars and cents.  WealthWealth  Something has wealth if it can be passed on toSomething has wealth if it can be passed on to someone else. (It must be desired)someone else. (It must be desired)  UtilityUtility  The usefulness of something. (Does it have a high orThe usefulness of something. (Does it have a high or low utility?)low utility?)
  12. 12. LandLand LaborLabor CapitalCapital EntrepreneurEntrepreneur OpportunityOpportunity CostCost ScarcityScarcity ValueValue UtilityUtility WealthWealth ProductivityProductivity SpecializationSpecialization EconomicEconomic Interdepen-Interdepen- dencedence TINSTAAFLTINSTAAFL ConsumerConsumer ProducerProducer FactorFactor MarketMarket ProductProduct MarketMarket ParadoxParadox of Valueof Value Trade OffTrade Off GoodsGoods ServiceService ProductionProduction PossibilitiesPossibilities FrontierFrontier CircularCircular Flow ofFlow of Econ.Econ. ActivityActivity 3 Basic3 Basic EconEcon QuestionsQuestions EconomicsEconomics

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