INTRO TO ECONOMICS

ECONOMICS & PERSONAL FINANCE

W H AT I S E C O N O M I C S ?
a social science concerned with the production,

distribution, and consumption of goods and services,

or the material welfare of humankind.
Types:
MACRO: deals w/ the broad and general aspects of an

economy, as the relationship between the income and

investments of a country as a whole.
Micro: deals with particular aspects of an economy, as the

price-cost relationship of a firm and individual.

THE FOUNDER
Adam Smith - The Founder of Modern

Economics
wrote The Wealth of Nations in 1776;

featured the invisible hand concept.

Invisible Hand: individuals try to

maximize their own good (and become

wealthier), and by doing so, through
trade and entrepreneurship, society as
a whole is better off. Furthermore, any
government intervention in the
economy isn't needed because the
invisible hand is the best guide for the
economy.

KEY ELEMENTS TO ECONOMICS

1. Incentives
the costs and benefits of making specific decisions.
changing incentives alters peoples behavior.
operate on all levels - personal, familial, industry and societal level.
incentives dont matter only to the greedy and selfish.
What incentives do volunteers have, if not monetary?
Why do / would you volunteer?

KEY ELEMENTS TO ECONOMICS

2. Exchange
to trade one thing for another.
example: I want to trade in my green disk for a blue one.

3. Barter
the exchange of goods or service without money.
example: Ill give you my cake for your ice cream.

4. Haggle
dispute or bargain persistently, especially over the cost of something.
example: The negotiation that takes place when buying a car.

KEY ELEMENTS TO ECONOMICS

Scarcity: Sometimes there is not enough of something to go around. That item

is scarce.

the artwork of Picasso is scarce because its not renewable and there are only

a few pieces.

the KEY fundamental economic problem

Shortage: is a man-made choice. Suppliers are not willing to make goods

available for this amount of money.

often go away over time; there is just not much of the good or resource right

now.

its a shortage if they can make more.

a bad crop causes a shortage in rice.

ECONOMIC DECISIONS
PACED Decision-Making Model: a system that helps you

as an individual make economic decisions.

1. State the PROBLEM.

2. List the ALTERNATIVES.
3. Identify the CRITERIA.
4. EVALUATE the options, based on the criteria.
5. Make a DECISION.

ECONOMIC DECISIONS
We need to weigh both the costs and

benefits before making choices.

Good decisions are well thought out

and based on facts.

Using economic reasoning and the

PACED model can improve our decision

making skills.

PA C E D

THE PROBLEM

Maria plans to attend college. She needs your help to

decide where to go. What are Marias alternatives?

T H E A LT E R N AT I V E S
M A R I A S T O P C H O I C E S

Local community college

Regional state university
Major state university
Private college or university

CRITERIA
W H AT S I M P O R TA N T T O M A R I A ?

Proximity to home
Cost
Availability of scholarships or jobs
Major

E V A L U AT E W H AT S T H E
B E S T M AT C H F O R M A R I A ?
CRITERIA

D I S TA N C E
FROM HOME

SCHOLARSHIPS

COST

MAJOR

LOCAL
COMMUNITY
COLLEGE

LOW

LESS

REGIONAL
S TAT E
UNIVERSITY

SOME

M A J O R S TAT E
UNIVERSITY

M AY B E

MID

MORE

P R I VAT E
COLLEGE

M AY B E

HIGH

LESS

A L T E R N AT I V E S

LOW MORE

D E C I D E W H AT S H O U L D
MARIA DO?

Once you determine which alternative best meets

your criteria, then you can make an informed

choice!

Making informed choices improves your

chance of making good choices.

L A S T, B U T N O T L E A S T . .

The next step is to ACT! Making choices

without putting them into action is not a good

practice.
If Maria never enrolls, then she can never

graduate or have the career she wants.

ECONOMIC CHOICES & OPPORTUNITY

COSTS
You make an economic choice when you only

have money for certain items, not all.

I do not have enough money for both popcorn

and a pretzel. I must choose, so I buy the

popcorn. That is my economic choice.
Opportunity cost: what you must give up when

you make an economic choice.

I chose the popcorn, so I have to give up the

pretzel. That is my opportunity cost.

ECONOMIC CHOICES & OPPORTUNITY

COSTS

What was Kevin Durants opportunity

cost of entering the draft after one

year of college?
What would have been his

opportunity cost had he stayed in

college?

S U P P LY A N D D E M A N D
Supply: the amount of a good or service available.
Demand: what people are willing and able to buy.

I would like to buy one candy cane, please.

TYPES OF ECONOMIC RESOURCES

Human Resources

Natural Resources

Capital Resources

TYPES OF ECONOMIC RESOURCES

Natural Resource: things we get from nature.

Oil

Coal

Trees

Water

TYPES OF ECONOMIC RESOURCES

Human resources: jobs done by humans at work.

TYPES OF ECONOMIC RESOURCES

Capital resources: the machines, tools, money and

buildings needed to do a job.

PRODUCERS & CONSUMERS

Producers: make goods or
provide services.
Consumers: use or buy
goods and services.
Interdependence: people
need each other for goods
and services (Triangular
Trade)

S P E C I A L I Z AT I O N
Economic Specialization: individuals or groups who
concentrate on one type of good or service.

Apple farmer

Carpenter

ECONOMIC SYSTEMS

Economic Systems: are the method used by a society

to produce and distribute goods and services.

how the government tells us what we can get and

how to get it!

government involvment

ECONOMIC SYSTEMS
All Economic Systems Must Consider the Following Questions:
1.

What goods and services to produce?

2.

How will they produce them?

3.

Who will get them?

4.

How much will they produce now, and how much later?

Each economic system answers these questions in a

DIFFERENT WAY.

ECONOMIC SYSTEMS
1. Traditional Economy
Economic questions are answered by habits and

customs (the way it has always been done)

Children work the same jobs parents worked, often

farming or hunter/gatherer

Fear Change!
Ex. Eskimos, & the Amish

ECONOMIC SYSTEMS
2. Command Economy
The government answers the basic economic questions
Advantages: able to act quickly in emergencies, provide

for all people equally

Disadvantages: Inefficient, no incentive to work hard or be

creative

Ex. Communist Countries (China, Vietnam, North Korea,

former Soviet Union, Cuba)

ECONOMIC SYSTEMS
3. Market Economy
Economic questions are answered by individual buyers and

sellers.

Supply and demand influence economy

People act out of self interest; motive for profit (money) drives

the economy

Also known as FREE ENTERPRISE or CAPITALISM

Ex. The United States, Western Europe, Japan

ECONOMIC SYSTEMS
4. Mixed Economy:
the countrys economy is a mixture of either pure

market, command or traditional, elements of each

appear in all economies, some have more elements of
one economy than another.

while the U.S. is mostly a free market economy, it does

have elements of a command economy.

F E AT U R E S O F A M E R I C A N F R E E M A R K E T
ECONOMY

1.

Economic Freedom: individuals have the right to

choose

2.

Competition: more than one producer of good/

services insures choice

3.

Private Property: individuals have the right to own

their own property, including business

F E AT U R E S O F A M E R I C A N F R E E M A R K E T
ECONOMY (CONT)
4.

Self-Interest: individuals make decisions based on

what is best for them

5.

Voluntary Exchange: individuals may freely buy and

sell goods

6.

Profit Motive: individuals are driven by a desire to

profit (make money)

F E AT U R E S O F A M E R I C A N C O M M A N D
ECONOMY
Government regulation of some business practices

1.

Ex. Wages, labor hours, safety practice.

Government limits certain choices

2.

Ex. Cannot buy or produce certain goods/services

Government provides aid to the needy

3.

Ex. Medicare, Medicaid, welfare

How would my pizzeria function under different

economic systems?

MY PIZZERIA IN A FREE MARKET

I answer the basic economic questions!
I determine how much cheese and pepperoni goes on

the pizza

I determine the quality of the cheese and pepperoni

I set my employees wages
I set my business hours

MY PIZZERIA IN A COMMAND
ECONOMY
The government answers the basic economic questions
The government sets the amount of cheese and pepperoni

on each pizza

The government determines quality of cheese and

pepperoni

The government sets employees wages

The government sets business hours

Problem: What does the government know about pizza?

MY PIZZERIA IN A MIXED ECONOMY

The Government and I both answer the basic economic

questions

I determine the amount of cheese and pepperoni on

the pizzas; government determines the quality of

cheese and pizza

I set employee wages; government sets minimum wage

for employees

I determine business hours; government determines

whether I am safe to be open or not

Types of Economies Chart