ECON - U1: Economic Foundations

Economic Choices

  • economics: study of how people make decisions in a world of limited resources

    • time and money

  • scarcity: not having enough resources to meet everyone’s needs and wants

Cost - Benefit Analysis

  • considering and weighing the benefits (and costs) of making a certain decision, in comparison to all other choices

    • makes something worth it

    • benefits > cost

  • utility: measurement of how much satisfaction you get from something

    • the assumed thought process everyone is using

    • happiness

    • incentives

      • ex.) fine for parking in a handicap space

  • trade offs: all the things you aren’t doing when you make a choice, the situation itself

    • not doing more than one activity at a time

    • ex.) by being in class, you are NOT doing - naps, hanging out with friends, playing games, etc.

    • type

      • opportunity cost: the next best alternative to thing you chose to do, and its value

        • second place

Four Factors of Production - CLEN

  • four things that need to be done in order to produce goods and services

  • depends on economic system

    1. Natural Resources

    2. Labor, people working

    3. Capital/Capital Goods

      • money needed to make things, stuff used to make other stuff

        • restaurant: oven

        • school: printer, computers, desk, etc.

    4. Entrepreneurs

      • innovation, starting businesses, make new products

  • Productions Possibilities Curve: graph that shows up the max amount of production given the resources and tech we have

    • shows the opportunity cost of producing one good instead of another

    • need to decide whether to make lots of one item or to balance it

    • format of graph

      • one item on the y, one item on the x

      • inside the line = inefficient, could produce more

      • outside the line = impossible

      • line = max

      • to go from one point to another, you are giving up something = opportunity cost

Three Fundamental/Main Questions of Economics

  1. What to produce

    • Production Possibilities Model

  2. How to Produce (how to manage your production and employees)

    • efficiency levels

    • environmental damage

    • treating workers well/badly

      • badly = costs less money

      • well = costs lots of money

  3. Who to Produce for

    • cheap or expensive products

    • target audience

    • legally

      • vapes

      • alc

Economic Systems

  • Traditional economy = TRADITION

    • decisions and questions based of customs/community leaders/ “higher ups”

    • has been done for a long time

    • profession and careers is based on what your family has been doing

    • family background

    • Medieval

  • Market (Capitalism) = INDIVIDUAL

    • NOT what we have in the U.S. or anywhere else

    • Private individuals have total ownership of production

    • answer the questions themselves

  • Socialism = SOCIETY, a collective

    • non existent

    • govt and econ definition not the same

    • society owns production, not one person or government

    • Whole society/community shares it

    • Economic questions are answered by the common good, what is best for everyone

  • Command Economy = GOVT CONTROL

    • economic communism, North Korea

    • Soviet Union, China (in the past)

    • all questions and questions decided by government

  • Mixed = (INDIVIDUAL + GOVERNMENT)

    • ex.) every other country

    • An individual can make a business with permission, some restraints

Aspects of Capitalism

  • consumer sovereignty

    • consumer decide what gets made and what doesn’t gets made

    • decide by buying or not buying

  • Economic Freedom

    • Individuals and businesses can decide what they’d like to do

    • deal w consequences

  • Private Property Rights

    • complete control of how they use their property

  • Competition

    • consumers = want best quality stuff at lowest price

    • competition allows for options, and better products

  • Profit Motive

    • business take risks to make money, add

  • Voluntary Exchange

    • buyers and sellers agreeing with transaction

    • businesses cannot force you to buy something

      • works the other way around

  • Adam Smith = Capitalism

    • Father of modern Capitalism

    • Idea that the best thing for the govt to do is to stay out of it (the economy)

      • better for the economy

    • would fix itself

Production Possibilities Curve

  • to get to “unattainable point”, need to INCREASE productivity and efficiency

    • Graph shifts RIGHT

Increases Productivity

  1. Specialization

    • everyone focus on one thing that they are good at

  2. Division of Labor

    • separating labor based on what an individual are good at, assembly lines

  3. Investing in Human Capital

    • invest in training and motivation

+more money and technology