Chapter OneFundamental Economic Concepts

Chapter OneLesson Two

Basic Economic Concepts

Goods, Services, and Consumers

What are Goods?o Anything useful and tangible (Can actually touch)o i.e. – car, book, clothing, etc.o Some goods are intended for final use by us – these are

called consumer goods• Durable vs. nondurable goods

Serviceso Any work that is performed for someone

Consumerso When we use our goods and services to satisfy our

wants and needs.

Value, Utility, and Wealth

Everything has value – the worth that can be expressed in dollars and cents

Paradox of Valueo Necessities vs. non necessities and their worth

Utilityo In order for something to have value it must have utility, or

the capacity to be useful and provide satisfactiono Not measurable

• Varies from person to person

Value and Wealtho The emphasis of monetary value is important to economists.o The value of something in dollars and cents is easily

understood

Value, Utility, and Wealth

Wealtho Can be individual or nationalo The accumulation of products tangible, scarce, useful, and

transferable to another person is wealtho Services are not considered wealtho Wealth we generate is made possible by the circular flow of

economicso Key feature = Markets – a location where buyers and sellers can

exchange a certain product.

Adam Smith, who wrote “The Wealth of Nations” in 1776 said“if a country’s material possessions were taken away, its

people, through their efforts and skills, could restore these possessions. On the other hand, if a country’s people were taken away, its wealth would deteriorate.”

Circular Flow of Economic Activity

Factor Markets

Product Markets

Individuals

Businesses

Income from

resources

Payments for

resources

Business income

Consumer spending

Goods/

services

Buy productive resources

Four factors of production

Circular Flow of Economic Activity

ACTIVITY Working in your groups, determine the meaning

of the circular flow diagram. One person will write down your groups thoughts

and comments. In conclusion, you must answer this question:

o As a consumer, what role do you play in the circular flow of economic activity?

Productivity and Economic Growth

What do you think happens when the circular flow becomes larger??

When our nations productivity increases over time we see economic growtho What is productivity?o The measure of the amount of goods and services

produced within a given amount time with a given amount of resources.• Only increase though when more can be produced with the

same amount of resources.

Productivity and Economic Growth

Define Human Capital?o The sum of peoples skills, abilities, andlth, knowledge,

and motivationo Question – How can the government orBusiness invest in Human Capital?

Government – Providing education and healthcareBusiness – training or other programs that improve the skills of their workers.

Productivity and Economic Growth

Division of Labor and Specializationo Dividing a task into different parts can cause the task to

be completed more efficientlyo Deciding who can do things better, or specialize, is also

more efficiento Examples????

Economic Interdependenceo We are as dependent on other countries as they are on

uso How can this be good?

• Gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.

Productivity and Economic Growth

Activity o Write about ways that you are dependent on others and

how others are dependent on you. o Circle which examples show economic interdependence

and explain why?

Chapter OneLesson Three

Economic Choices and Decision Making

Trade-Offs and Opportunity Costs

Trade-Offso -Alternate choiceso Decision making grid

• Forces you to consider alternatives

Opportunity Costso Cost of the next-best alternativeo Everything else is a trade-off

Trade-Offs and Opportunity Costs

Blank San Francisco Los Angeles SeattleClimateCost of livingNumber of game companiesCrime rateIt's a pleasant-looking cityDistance from family

Production PossibilitiesC

ar

s

Clothing

When the production of one item increases, the other item decreases

Opportunity Cost

Thinking like an Economist

Economic Modelso A simplified equation, graph, or figure showing how

something works.o All economic models are based on assumptions – things

we think are trueo Can be revisedo If assumptions are correct, we can use againo If assumptions are wrong, chart can be changed to make

better predictions.

Cost-Benefit Analysis What is it?

o A way of comparing the costs of an action to the benefits received

o As a group, describe a scenario in which you would use a cost-benefit analysis to determine worth or value?????