I' Foundations of Economics

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• I. Foundations of Economics
• A. Economics- The study of how individuals and
  societies distribute their resources to satisfy
  their wants.
• Example How does Bill Gates spend his 50
  billion or how does the U.S. spend the 1.7
  trillion it collects in taxes.
• 1. Macroeconomics- Large economic activity.
• Example When politicians talk about the
  economy being in recession they are talking
  about Macroeconomics.

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• 2. Microeconomics- Individual economic
  decisions.
• Example How a business makes and spends money
  or how your family makes and spends money.

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• B. Economic Problems
• 1. Scarcity- Unlimited wants with limited
  resources.
• Example We like to drive SUVs and pay 10 cents
  a gallon, but there is only so much oil in the
  world.
• 2. Opportunity Cost- The value of the best
  alternative given when a choice is made.
• Example Going to school at Weber instead of
  working at McDonalds during high school.

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• II. Solving the problem of Scarcity
• A. Factors of Production- Resources that are
  used to fulfill the wants of humans.
• 1. Land- Farmland, oil fields, etc.
• 2. Capital- Tools, equipment, factories that
  produce goods (things you can buy or sell.
• 3. Labor- People who use their effort and skill
  to produce a product or offer a service.
• 4. Entrepreneur- People who risk money and their
  labor in search of profits.

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• B. Three basic questions that try to solve
  scarcity
• 1. What should be produced.
• Example A nation like Saudi Arabia would be
  foolish to try to produce corn when oil is
  plentiful.
• 2. How will resources be used in production.
• Example Will technology be used
• 3. Who will consume the goods that are produced
• Example Saudi Arabia ships most of its oil to
  the U.S. in exchange for other goods.

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• C. Needs, Wants and Value
• 1. Need- Needs are basic things that one needs
  to survive. Example Clothes, food, shelter,
  love.
• 2. Wants- Desiring something related to a need.
  Example A nice car
• 3. Value- Something that has worth and can be
  expressed by money.
• a. Utility- Something that has use for someone.
  Example Raider tickets are valuable to only a
  small group of people.
• b. Wealth- The accumulation of things that are
  scarce.

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• III. Economic Systems
• A. Traditional System- Roles and jobs are
  determined by elders or ancestors of a certain
  group. Example The Inuit Indians determine who
  will hunt for food and how the food will be
  divided.
• B. Command Economy- The government determines
  what, how much and for whom things will be
  produced for. Example Communist countries like
  China make economic decision for people.

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• C. Market Economy/Free Enterprise Economy-
  Consumers and Businesses make economic decisions
  rather than the government. Example
• In the U.S., the government allows individuals
  to invest and carry on business with few
  regulations.

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• 1. Capitalism- A system in which citizens own
  the factors of production.
• a. Capitalism is based upon competition which
  can be defined as the struggle among sellers to
  attract consumers with lower prices. Example
  Rockefeller use and abuse
• b. Voluntary Exchange- People buy and sell freely
  in a market environment. Example Swapmeets.
• c. Profit Motive- People have the freedom to
  make money and enjoy the benefits of money.
  Example Why make money in Russian if you are
  just going to give it back to the government.

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• 2. The U.S. Economy
• a. The U.S. economy is known as a mixed economy
  because the U.S. has places restrictions on
  companies as to what they can and cant do. No
  government restrictions is known as laissez
  faire or hands off
• Example- The Federal Drug and Food Administration
  controls how food is bought and sold.