Economics Basics

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Economics Basics
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Wants and Needs

• What is the difference between the two?
• Needs essentials
• Wants luxuries

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Goods Services

• Good tangible things that satisfy human wants
  and needs
• Service intangible things that satisfy human
  wants and needs

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Economic Way of Thinking

• Decision making process.
• Determining how the choices you make will impact
  you economically

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Basic Economic Problem

• SCARCITY
• Results from unlimited human wants/needs and
  limited available resources

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Three Basic Economic Questions

• What goods and services should be produced?
• How should these goods and services be produced?
• For whom should these goods and services be
  produced?

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Who answers these questions determines what type
of economic system you have

• Command the government
• Market the people
• Mixed the people with government oversight
• Traditional the customs and beliefs of society

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Spectrum of Economic Control
Command
Market
MIXED
Total government control of the economy
Private citizens control the economy
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The 4 Types of Economic Systems
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Four Factors of Production

• Land / Natural Resources
• Labor/Human Resources
• Capital
• Entrepreneurship

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Land/ Natural Resources

• Things in their natural state and have not been
  altered by humans
• Examples trees, crude oil, coal, land

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Labor/Human Resources

• Human effort that is applied in producing the
  goods and services
• Example lumberjack, truck driver

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Capital

• The tools used in labor to make the product
  machines, trucks, factories
• Capital can be raw materials after they have been
  altered by labor Previously produced goods
  Example lumber gasoline
• Money is only considered capital if it is used to
  purchase things necessary for production Example
  money spent to purchase a factory

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Entrepreneurship

• What is needed to bring all other aspects of
  production together
• Managerial ability- include the ability to
  organize, direct, control
• Risk taking have to take risks in order to be
  successful

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Circular Flow Model
Lets look at the big picture How do economies
function?

• Shows the basics of how economic systems work and
  how firms and people fit into these systems

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Product Market
Factor Market
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Circular Flow Model

• Flow of money is counter-clockwise

• Flow of goods/services the factors of
  production is clockwise

Goods Services
Factors of Production
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A look at the top of the circular flow model

• Households buy products from the product market
  finished goods and services which are supplied
  by the firms
• Jeans move from the firm to the product market
  and then to you the household buyer
• Money from the household flows to the product
  market and then back to the firm

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A look at the bottom of the circular flow model

• Households provide factors of production to firms
  in the form of labor they sell, natural resources
  they own, or in savings they invest
• Firms buy the factors of production from the
  households firms pay wages to workers, which
  serves as income to households