Economics

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Economics
The study of how scarce, or limited resources are
used to satisfy peoples unlimited material wants
and needs. How people make decisions in a world
of scarcity.
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Scarcity
There are not enough, nor can there ever be
enough, goods and services to satisfy the wants
and needs of all individuals, families,
and societies.
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Unlimited wants
Limited resources to satisfy wants
Choose between alternatives
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Scarcity and Choice
Scarce Goods
Limited Resources
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Tradeoffs
Choices involve tradeoffs and consequences.
- give up to get It involves a value
judgment. - decide the relative
importance of alternatives
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Opportunity Cost
What must be given up to get one more unit of
another good or service
Involves evaluating the costs and benefits of
choices.
This class?
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Productive Efficiency
Goods and services are produced at the lowest
cost.
It also means doing the job they were trained or
designed to do
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Equity
Should every person receives as much as every
other person?
or
Should people receive based on their relative
need for the goods and services?
or
Should people be rewarded for their contribution
to the production?
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Factors of Production
1. 2. 3. 4.
Land
Labor
Capital
Entrepreneurship
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Payment to Factors
1. 2. 3. 4.
Rent
Wages and Salaries
Interest
Profits
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Developing Economic Theories
1. Determining variables to study
Prices Incomes Age groups Population Government
actions
Independent vs Dependent -
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Methods
2. Make Assumptions
eg. Ceteris Paribus (other things being
equal) - only consider changes to one variable
like Price
see Independent variables a little later
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DATA
3. Gather data
Need facts to support theories and theories to
make sense of facts.
4. Study the data
a. Inductive
Use facts to develop a model
Take a survey and study the results
b. Deductive
See if the facts support a hypothesis
Start with a theory and see if facts support it
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CONCLUSIONS
5. Make Conclusion
a. Principle - relationship
b. Theory string of principles
c. Law theory proven to hold true most times
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policy
6. Set a Policy.
The cause of most disagreement
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Presenting results
1. As a theory or law.
The Law of Demand
As the price of a good rises, the quantity people
will want to buy (demand) will fall.
The Law of Supply
As the price of a good rises, the quantity
producers will want to sell (supply) will rise.
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Presenting results
2. As a picture.
Illustrating the relationship between 2
variables Eg. Price and
Quantity
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The Law of Demand
Other things being equal, as price
increases, the corresponding quantity demanded
falls
(price is the only variable that is changed)
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The Demand Schedule
Selling Quantity Price
Demanded
10
5
4
15
3
25
2
40
1
60
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The Demand Curve
Graphing
-Plot the points
Price
-Connect the dots
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5
Downsloping left
to right
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3
Demand
Demand
2
1
0
10
20
30
40
50
60
Quantity
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Economic graphs

• Independent Variable
• - Price, wages,
• - Y axis

• Dependent Variable
• - Quantity, workers,
• - X axis

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Economic graphs

• Direct Relationship
• - Graph slopes up from left to right

• Inverse Relationship
• - Graph slopes down from left to right

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Production possibilities
Assumptions

• All resources are fixed in quantity
• All resources are fully employed
• Existing technology is fixed.
• You have a choice of 2 goods to produce

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Production possibilities
Table
Pizzas (10,000) 0 1 2 3 4 Road Pavers 10 9 7 4 0
Opportunity Costs?
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Production possibilities
Curve (or Frontier)
Result of combination A- B- C- D-
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Future Growth
A
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D
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Less Growth
Road Pavers Capital good
B
C
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Unemployment
Use up resources
0
1
2
3
4
Pizza Consumer good