CHAPTER 1: WHAT IS ECONOMICS ?

❧

Learning Target 1-1 Define Economics and explain what makes it part of Social Sciences.

• Economics is a social science that studies how people, acting individually and in groups, decide to use scarce resources to satisfy their wants.
• Economics is part of the Social Studies department because it involves the study of people interacting with human, capital and natural resources.
• We study Economics because people on planet Earth want more things than the resources on the planet can provide for.
• This condition of scarcity forces people to choose how they will try and satisfy their wants.

❧

Learning Target 1-2 Based on the reading and figure 1-1, explain what the Want-Satisfaction Chain is and identify how Production, Distribution, and Consumption each play a factor in satisfying human wants.�

• The Want-Satisfaction Chain is an economic model that is used to describe the process that people and businesses go through when trying to satisfy people’s wants.
• In America’s mixed-market economic system, the Want-Satisfaction chain explains the process of satisfying people’s wants.
• The process begins with a human want. The text uses a loaf of bread as an economic want.
• As a result of a consumer wanting to buy a loaf of bread, the Want-Satisfaction Chain is set into motion and the process begins.

❧

Learning Target 1-2 Based on the reading and figure 1-1, explain what the Want-Satisfaction Chain is and identify how Production, Distribution, and Consumption each play a factor in satisfying human wants.

• Because a consumer is willing to pay for a loaf of bread, the chain is set in motion.
• The first step is Production, which is a process of combining economic resources to produce a product.
• Many different businesses who may not know one another are involved in producing the many ingredients that go into making bread.
• The farmer who grows the wheat, the miller who turns it into flour, and the baker who uses other ingredients to make and bake the bread all contribute to the production.

​

​

❧

Learning Target 1-2 Based on the reading and figure 1-1, explain what the Want-Satisfaction Chain is and identify how Production, Distribution, and Consumption each play a factor in satisfying human wants.

• Once the product has been produced, it then is distributed to consumers to be purchased.
• Distribution is the process of getting goods and services that have been produced to consumers to be purchased.
• The final step in the Want-Satisfaction Chain is Consumption.
• Consumption is the consumer use of a good or service that has been produced.
• Once the loaf of bread is consumed, the process begins again when a consumer heads back to the market to once again buy a loaf of bread, and the process begins all over again.

❧

Learning Target 1-3 Identify and provide an example for the four Factors of Production.�

• Economists call Land (Natural Resources), Labor (Human Resources) and Capital, the Factors of Production. The fourth factor is Entrepreneurship.
• The Factors of Production are the productive resources that go into the production of goods and services. The Factors are as follows:
• Natural Resources- gifts from nature like trees, water, minerals, soil, etc.
• Human Resources- Human beings who use their skills to work at jobs to produce goods and services.
• Capital Resources- The tools and machines used to produce goods and services.
• Entrepreneurship- The imagination and innovation of people who start or improve and operate a business. They take a risk that they will provide something that consumers will want to buy.

❧

Learning Target 1-4 In economic terms, explain the concept of scarcity and identify the gap economists are referring to when talking about scarcity.

• People’s wants far outweigh planet Earth’s ability to satisfy them.
• Scarcity is the inequality that exists between people’s wants and the resources available to satisfy them.
• The more scare something is, the more expensive it can be. Can you think of things that are scarce?
• Economists state that there is a “gap” between what people want and the resources available to meet those wants.
• If resources were plentiful and there was no scarcity, there would be no need to study economics.

​

​

❧

Learning Target 1-5 Define Opportunity Cost and provide an example of an incident where you made a choice that involved an Opportunity Cost.�

• Because resources are scarce, they can only be used one way at a time.
• Scarcity forces consumers to think about choices and alternatives.
• When we make a choice as consumers, we are forced to give up other possible choices, or what Economists call an Opportunity Cost.
• An Opportunity Cost is the highest valued alternative that a consumer gives up when making a choice.
• Examples: A student has to choose between getting an after school job or going out for a spring sport. If she chooses to get the job, what is her Opportunity Cost?
• Can you think of a decision you made that involved an Opportunity Cost?

❧

Learning Target 1-6 Define the concept of Voluntary Trade (Exchange) and explain how it ensures that goods and services will be produced in the US Mixed-Market economy.

• The United States economic system is called a Free Enterprise or Market Economy.
• A Market Economy is an economic system that relies on Voluntary Trade (Exchange) as the primary means of organizing and coordinating the production of goods and services.
• The US economic system relies on Voluntary Exchange to ensure that goods and services are produced and sold in markets.

❧

Learning Target 1-6 Define the concept of Voluntary Trade (Exchange) and explain how it ensures that goods and services will be produced in the US Mixed-Market economy.

• In our Market Economy, Voluntary Exchange ensures that goods and services will be produced.
• When we make a decision to buy something at a store, we exchange our dollars for a good or service.
• Take buying a box of Corn Flakes as an example. When we buy a box of cereal at the store (make a voluntary exchange), we send a message to the store that we want more of the cereal produced.
• The store takes an inventory of the cereal being purchased, and then contacts the cereal producer to make more cereal to stock the shelves. →

​

• The cereal producer then contacts the many businesses that help produce a box of cereal (famer of corn, baker of the corn flakes, box makers, truck drivers, etc) and as a result of a consumer using their dollars to “vote” for a box of corn flakes, we ensure that more corn flakes will be produced.

❧

Learning Target 1-7 What are marginal costs and marginal benefits? Explain what it means to think at the margin. Provide an example where you made a decision that involved thinking about a marginal cost and a marginal benefit.

• In Economics, the term Marginal means the extra or additional costs or benefits of a decision.
• Because resources are scarce, we must make careful choices about how to best use our resources.
• Every choice we make involves benefits and costs to us as consumers.
• As long as the marginal benefit of a decision outweighs the marginal cost, as consumers we are satisfied.
• For example, if you decide to sleep in until 7:15 am on a school day, and therefore give up time to eat breakfast, you are deciding that the marginal benefit of sleeping until 7:15 outweighs the marginal cost you would sacrifice if you decided to wake up at 6:45 to ensure you had enough time to eat breakfast and get ready for school.
• When you weigh the benefits and costs of making a decision, you are thinking at the margin.

• Businesses, when pondering hiring an additional worker, must weigh whether or not the benefit of hiring an extra worker outweighs the cost of hiring the worker.

❧

Learning Target 1-8 Define a market, a market economy, and identify and explain the three economic decisions that all economic systems must answer (p12). �

• A Market is an arrangement that allows buyers and sellers an opportunity to make exchanges. Examples include purchases at a store, on the internet or by phone.
• A Market Economy is an economy that relies on Voluntary Exchange as the primary means of organizing and coordinating production.
• All Economic systems, whether a market system, a communist system, or a traditional system, must answer three economic decisions:
• What goods and services to produce?
• How should goods and services be produced?
• Whom will receive the goods and services produced?

​

❧

Learning Target 1-9 Identify and explain the two branches of Economics.

Macroeconomics

Macroeconomics is the study of the Economy as a whole and examines questions that lead to an understanding of the big picture.

Questions that Macroeconomics answer are: How fast is the level of production in the nation changing? How many people nationwide are unemployed? How has the nation’s total income changed?

​

Microeconomics

Microeconomics is the study of individual consumers and businesses and examines the choices that individuals, families and businesses must make.

​

Questions that Microeconomics answer are: What price is an individual willing to pay for a concert ticket? Should we take a family vacation? What should we pay our employees? Should our business buy new computers?

​

❧