Fundamental Economic concepts (FECs) Economics- Unit 1: Chapter 1-2 

FEC #1- Scarcity and choice

What I need to live:

  • Food

  • Water

  • Air

  • Shelter 

  • Jesus

  • Sleep

What I want to have:

  • A job I love

  • To be happy with my life

  • Get married

  • Have kidsScarcity  everything and everywhere is limited

  • Resources:

    • Land- anything on the land or in the land that has value; examples: ON: trees, crops, livestock, building; IN: water, oil, gold
    • Labor- workers and their level of education and experience; examples: teacher with no experience not as good
    • Capital- any good or service used to produce another good or service; examples: car with all parts (lots of capital)
    • Entrepreneurial ability (sometimes called managerial ability)- ability to take land, labor, and capital and create a good or service that people want to buy; examples: good management

    Goal of all Economics- limited resources with unlimited wants and needs- goal is to stretch out resources to meet as many wants and needs as possible * Forces us to MAKE CHOICES

    FEC #2- Rationality * Economics is based on the fact that our choices are rational and, therefore, meet our utility  * Utility- your happiness or satisfaction * Rational self-interest– your personal utility (happiness) your rational self-interest is different than anyone else’s bc based on your own personal thought process * How do you know if something is rational? * Cost Benefit Analysis- a way to illustrate a choice or decision * A cost is a con; the benefit is a pro * Weigh the costs and benefits * If the benefits outweigh the costs- the choice is rational * Microeconomics- decision-making by individuals, households, and businesses (examples: pay bills, family vacation) * Macroeconomics- decision-making by governments or countries (how much taxes, should we drill for oil)

    FEC #3- Trade-offs and Opportunity Costs * List anything you've ever gotten for free * What makes these things free? No cost * Famous Economics Saying: “There is no such thing as a free lunch.” * Nothing is free. * Costs are more than just money- time and energy; if you give something up it could be a cost (it can be anything) * Trade off- the choice you did not choose (go home to take a nap instead of working out) * Opportunity cost- benefits of the choice you didn’t make; the benefits become costs (go to UTC instead of UTK lose the choice of an SEC school) * Cost Benefit Analysis * Chick Fil A * Costs: chicken minis stop at 10:30, closed on Sundays, limited options * Benefits: not far from home, mostly quick, good fries * trade-off - benefits now become opportunity costs * Boathouse * Costs: pricey, downtown, time, gas, look nicer * Benefits: love the food, see the lake, good atmosphere * Choice

    FEC #4- Incentives Matter * All economic theory is based on the fact that incentives influence human behavior in a predictable manner. * Incentive- pushing you to make a choice: any reason you do something * Intrinsic v. Extrinsic- intrinsic=inside; extrinsic= you are being influenced by something outside of your own self-interest * What are some examples of each? * What about incentives that influenced your CBA? * Types of Incentives * Positive incentive- rewards you get, added bonuses, (ex: sign contract and get an added bonus; buy one get one free) * Negative incentive- consequences or punishments * Consumer incentive- buyers and consumers (most effective is sales); modifying consumer behavior to consume more  * Producer incentive- produce (business owners)-modify producer behavior so they produce more (moving out to Ooltewah to meet people's needs) * If incentives change, human behavior will change, but it will also work to an equilibrium (balance) * For example: consumers and producers both win when things are on sale: producers get rid of products, and consumers get more product * Problems with Incentives- people learn how to work the system to get its best benefit; not perfect