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Fundamental Economic Concepts

pp. 2-85

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Do not do any Critical Thinking

• Do not do any Critical Thinking

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Remember: (copy)

• You are “valuable human capital”• Things could not get done without your

contribution– Labor, skills, productivity– Creativity, innovation, motivation– Consumption, demand

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Chapter 1 What is Economics? Section 1 p.5 Terms:

• Scarcity—• 5 when society does not have enough

resources to make things–Affects production–Affects price

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Economics

• 6 the study of how people try to deal with the problem of seemingly unlimited and competing wants by careful management of scarce resources.

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Need • 6 what is required for survival– Food– Water– Clothing – Shelter

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Want

• 6 an expression of a need.• Usually beyond a basic form of a need–One needs water–One wants a cola drink (made with water

and other ingredients)

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Factors of production

• 7 resources required for the making of goods or performance of services.– Land–Capital– Labor– Entrepreneurs

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Land– 7 actual terrain owned,– All the “gifts of nature” (natural resources) the

land contains.• Deserts• Coasts • Fertile fields• Forests• Mineral deposits, livestock• Sunshine• climate

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Capital

• 7 used to produce goods and services.– tools, –equipment, –machinery, – factories, –other non-monetary wealth

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Financial capital

• 7 Money used to buy the capital.

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Labor

• 8 People and their efforts, abilities, skills, who make goods and perform services.

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An Ancient Business Custom--handout

• What business practice is portrayed in the video? – a job interview,

• Why do businesses want this done? (2)– To see if the applicant is qualified– to see if the applicant fits in with the people already in the business.

• What questions are asked to the applicant? – Why you want to join tribe? – What can you do?– Where do you see yourself professionally the future?– Why did you leave your last company?– How long were you with your last company?

• For your information and a question: CV = British slang for “curricula vitae” = In American English we would call this kind of “brag sheet” a what?– resume.

• As these people are Neolithic people, what are the typical skills they cite as experience? (2)– Hunting– Gathering

• Why do they tell the first applicant to move on?– He lied about his last job, they cannot trust him.

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Entrepreneur

• 8 a person who starts a business.• Takes risk• Finding enough financial capital to

produce the good or service.• Has new ideas for existing resources.

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Production

• 8 the process of creating goods and services.

• Needs:– Land–Capital– Labor– Entrepreneurs– Let’s make clear glass….. handout

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Production—making glass.• Counting land as resources, what resources do we need to produce

clear glass? (4)• sand, soda ash (sodium carbonate), lime (calcium carbonate); tin• Why are the first two elements added to the sand? (2)• to make it easier to melt and softer to work with • Counting what capital goods are needed to produce the clear glass?

(5)• factory, storage silos, conveyor belts, ovens, kevlar/fire retardent

gear for laborers, fuel, hoses, electricity, rollers, robot cutters,• What element that people cannot really control in many things they

do, but especially so in glass making, is a factor in producing glass? • Time.

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Production—making glass.

• Why is liquid tin used?• to make the liquid glass flat• What will the clear glass be use to produce at the next

factory? • Windows• Did these factory’s look safe to you?• No, even with safety devices, if one gets into an accident it

could be severe or kill.• Yes, if one is careful and uses the proper techniques and

gear, they should be safe and get their job done efficiently.

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Gross Domestic Product (GDP)

• 9 the dollar value of all final goods and services.• Measures:– A 12-month period– Output of an entire nation– Unemployment– Inflation– International trade– Interaction between business and labor– Effects of government spending and taxes

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Section 2 p. 12, termsBasic Economic Concepts

• Economic product• 12 goods and services that are–Useful– Scarce– Transferable

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Good• 12• An item, physical, that is • economically useful • Satisfies a want

• Consumer good• 12 item intended for final use by individuals• Capital good• 12 item used by manufacturers to produce other

goods or services

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EC: Consumer good or capital good? Mostly…..

• mobile phone• Dodger ball cap• Cement truck• Boeing 772• Doritos • Tommy’s Triple Cheeseburger• Chocolate candy wrapping machine• Eye liner• Caterpillar bulldozer

• Consumer good• Consumer good• Capital good• Capital good• Consumer good• Consumer good• Capital good• Consumer good• Capital good

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Service

• 13 work that is performed for someone by someone else.– Haircuts– Food vendor– Home repairs– Entertainment– Professional sport– Banking/finance– Insurance– Sales– Legal office

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Value

• 13 the worth of a good and service that can be expressed in currency.– US: dollars and cents

• Paradox of value– 13 Some necessities have little monetary value• Water• Air

Utility

• 13 something is useful– Provides satisfaction

• EC: High or low utility? Explain:• A truckload of flowers (2)

– Low; don’t last long, limited, non-vital uses• A truckload of fresh tuna (2)

– High; lasts longer, more vital uses• As a result, which will be more expensive? Explain. (2)

– Frozen tuna, it is a food source, more vital to people.

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Wealth

• 14 economic idea includes:• Accumulation of products that are– Tangible– Useful– Scarce– Transferable to others

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EC: Wealth includes (13)• Natural resources• Land • Factories• Any kind of useful building• Furniture• Clothing• Books• Highways• Video products• Sports items• Etc. (so long as they can be used to show and be used as wealth)

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EC: Wealth Test: A pro-football team

• Tangible? Explain– Players, equipment, location

• Useful? Explain– Big market; multi-millions in entertainment profits with

each game, especially championships• Scarce? Explain– There are only a few teams in the nation; in order to

watch, most people must pay (stadium, TV)• Transferable to others? Explain– Teams can be sold; they can move to new locations.

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Market

• 14 A location or mechanism that allows buyers and sellers to exchange a certain economic product.– Locations: copy

• Local• National• Global

– Mechanism: copy• Grouping

– Age– gender– Ethnicity– Interest– Region

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Economic growth

• 15 the increased “circular flow” of factors of production– Goods– Services– Payments

• Productivity• 15 the measure of the amount of output created by

the amount of inputs in a specific period of time.– Increased productivity = same input makes more output

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Factor market

• 14 where capital goods are bought and sold– Includes

• job market• Productive resources

• Product market• 14 where consumer goods are bought and sold– Money made through labor returns to businesses in

purchases

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Capital or Consumer Market?Explain on a separate paper.

• Image one and explain• Consumer market: • most of the products will only be used in the home for facility,

convenience, or entertainment, but not to make money.• Image two and explain• Capital (production) good: • Most of the machines here will be used to do construction

work by companies. Some will be bought by rental companies for home do-it-yourselfers. Farmers will use one, rented or purchased, to maintain their land. Almost all will be used to make money.

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Division of labor

• 12 work is arranged so workers do fewer tasks than before– Workers with less tasks tend to be more proficient.

• Specialization• 12 a factor of production can do a task better than

most other factors of production. (ford Assembly line; note the different jobs at each point in the line.)

• Usually performing what they are best at. (Lucy and Ethel only have one job to do.)

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Human capital

• 12 the sum of all the skills, abilities, health, and motivation of a person

• Government can develop it by– Public education

• Business can invest by– Training and job programs

• Individuals can invest by– Education/training

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Economic interdependence

• 17 one economic system depends on another economic system

• Nation to nation

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Hwk Assessments, Class Work, to Know

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CH1, Sect 1 Assessments: Checking for Understanding

• 1.• Choices must be made as long as wants are

greater than the resources available• 3. • Scarcity

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CH1, S1

• 4.• What to produce?• How to produce?• For whom to produce?

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CH1, S1

• 5. • The factors of production are• Land, – terrain and its natural resources

• Capital,– Tools, building, money

• Labor– People’s efforts to produce

• Entrepreneurs– Start new business, find money/resources to produce

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CH1, S1

• 6• Description• Analysis• Explanation• prediction

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CH1, S2

• 1• Buying/selling goods and services• Using money from sales to produce more

goods.• 3• Should reflect understanding

interrelationships

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CH1, S2

• 4• Should reflect diagram, p. 15

• 5• When productivity goes up, more output is

produced with the same amount of inputs in the same amount of time

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CH1, S2

• 6• Without specialized workers and goods,

productivity would be reduced.

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Why is prediction an important element of economics?

• People and society often need to know how their decisions will affect the well-being of people and businesses – Especially in the future.

• Prediction enables people to evaluate the consequences of different choices.

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Images, p. 14

• Question• Because they are – “tangible”, – scarce, – useful, – transferable to others.

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Images, p 15

• Question• “you”– Give Labor and get income– Spend your income to buy• Goods• services

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Why are you “valuable human capital”?

• Things could not get done without your contribution– Labor, skills, productivity– Creativity, innovation, motivation– Consumption, demand

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How is it possible for a good to be both a capital good and a consumer good?

• Some goods are used both by consumers and by companies to produce more goods. – An example of this might be a small tractor. • Used in a home garden, it is a consumer good, • Used on a small farm it is a capital good.

– Do not use tractor example on any exam if asked. – EC: consumer or capital good? Explain. (up to 4)

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Brief Response:

• Adam Smith organized many ideas into what we call economics today. In his essay, The Wealth of Nations, 1776, Smith argued …..– ….the abilities and skills of a nation are its sources of

wealth…..

• Which factor(s) of production would Adam Smith be most likely to identify as the source of a nation's wealth? Do you concur? Explain. (4)– Reminder: factors of production = (see your notes)