Economic Way Of Thinking

Economics

Chapter 1

I. An Economic way of Thinking

What's Economics?

- The study of choices people make to satisfy their needs and wants.

- It is the study of how society choose to use it's scarce resources to satisfy it's unlimited needs and wants.

Economists:

- Someone who studies the choices that people make.

- Someone who studies the economic theory and applies it to the real world.

Economic Actions:

1. Micro-economic: Study of one single factor of economy. (Mobile co.)

2. Macro Economic: Study of the entire economy.

Economic Decisions: (2 major economic makers)

1. Consumers (buy goods and services).

2. Producers (provide goods and services).

- The network of these decisions is the basis of all the economic theory.

Economic classify:

1. Goods (needs necessary for survival)

2. Wants (needs beyond what is necessary for survival).

Products:

- Goods (something physical). - Services (activities).

Economic resources:

A resource: Anything that people use to obtain What they need or want.

Resources are used to produce goods and services, They are called factors of production.

Factors Of Production:

1. Natural Resources: Farmlands, Oil Fields, Wind, Rain, and Sunlight.

2. Human Resources: Teacher, Dentist.

3. Capital Resources: Capital Goods, and Consumer Goods.

4. Technology: A Human Resource based on Natural or Capital resources (Computers).

5. Entrepreneurship: Michael Dell, And John Ford, Osman Trading co.

Capital resources:

Items used in the production of other goods and services. Example: Buildings, Machinery, Factories, and Dams.

Capital Good:

Items used in making finished products. (Pcs)

Technology:

Using Technical Knowledge and methods to create new products or improve the Existing ones. (PC advances)

Entrepreneurship:

The organizational abilities that are taking the risk of a new business.

Entrepreneur:

Someone who takes a risk in making a business or project that might fail.

II. Scarcity And Choice!!

Scarcity:

When Resources are Limited. People's needs and wants are unlimited. The Combination of limited economic resources and unwanted wants a result in a condition Known as Scarcity.

Identifying economic questions:

Limited economic resources require people to make decisions. People decide to allocate or distribute resources to satisfy the greatest needs &wants.

Economic questions:

- What to Produce? - How to Produce?

- For whom to produce?

Productivity:

Economists determine if resources are used wisely by studying productivity.

Economists:

Someone who studies the choices people make.

Production:

The Level of output for a given input (Such as 100 workers produce 1000 clocks)

Efficiency:

is the use of smallest amount of resources to produce the greatest amount of output.

How To Improve Efficiency?

1. Division of Labor: Each Labor is assigned a small number of tasks that it Repeatedly Performed.

2. Specialization: The Focus of a worker on only one or a few aspects of Production.

How To Increase Efficiency?

1. Creating Shortcuts for the workers to do the work Quickly.

2. Mechanization: Automation or Computerization.

III. Opportunity Costs

Trade - off:

The sacrifice of one good to purchase or produce another. The cost of this trade off is called the opportunity cost.

Opportunity Cost:

The value of the next best alternative that is given up to obtain the preferred item.

Example:

2 events you want to attend in the same week (a movie and a football match). Both cost the