ch1-16 ECO-MACRO - Click to edit Master subtitle style...

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Unformatted text preview: Click to edit Master subtitle style Chapter 1 Economics The World Around You Outline Economics defined Making choices Resources, wants Macro vs. micro Positive vs. normative Use of graphs Economics is the study of how man uses resources to satisfy wants. Economics Thus, economics is a study of making choices. Economics The basis for making these choices is the fact that resources are limited , but wants are unlimited . Economics Because we must make decisions on how to use scarce resources to satisfy unlimited wants , man is said to have an economic problem . The Economic Problem We all have an economic problem: every household, business and governmental body. The Economic Problem Resources in economics are termed factors of production . Resources There are four factors of production: Factors of Production Land Labor Capital Entrepreneurial ability Land means the same as natural resources . Examples include oil, coal, iron ore, agricultural land, forests and water. Land Labor Labor refers to the physical and mental talents of individuals . Examples include auto workers, teachers, retail clerks and many others. Capital Capital is not money in this course. Businesses convert money into real capital, such as equipment, tools and buildings . This is how we look at capital in economics. Entrepreneurial Ability Entrepreneurial ability refers to the business organization itself. A sole proprietor would fit, but so do partnerships as well as corporations. The returns to the factors of production are: Returns / Payments Land - rent Labor - wages Capital - interest Entrepreneur - profit Wants Wants are often times looked at in terms of economic sectors. The economy is divided into the private and public sectors. Private Sector The private sector consists of the household sector and the business sector . Public Sector The public sector is the same as government at the federal, state and local levels. Economics is a social science . Social sciences deal with people. In economics, we attempt to explain or predict human behavior. Social Sciences But since people are different, the best we can do is explain what most people will do. Thus, when we explain behavior, we are making generalizations. Social Sciences Since economics is not an exact science, to understand economic principles and generalizations, you must think in terms of probability. Social Sciences In all probability Economic Way of Thinking More than likely Opportunity Cost The economic way of thinking, and making choices, also involves opportunity cost. Opportunity cost is opportunity lost . Opportunity Cost Opportunity cost is the sacrifice that is made when choosing to do one thing over another. Marginal Analysis When making choices you weigh the benefits against the costs of that action. The additional benefits received and the additional costs incurred are the marginal benefits and costs. Costs in economics involve dollar outlays as well the...
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This note was uploaded on 02/18/2011 for the course COMP 1100 taught by Professor Smith during the Fall '10 term at St. Petersburg College.

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ch1-16 ECO-MACRO - Click to edit Master subtitle style...

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