Chapter 1: An 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 same and you just have the money for one. A trade-off must be made. If you decide to spend the money on the movie ticket, the alternative (football match) is the opportunity cost. Of the movie ticket.
Production Possibilities curve:
A graphic representation of all possible combinations of 2 goods or services that can be produced in a stated period; provided that the amount of available resources and technology will not change during the period and that all natural, human, and capital resources involved are being used efficiently.
Points lying inside the curve  possible production.
Points lying outside the curve  impossible production

IV. Section 4 Exchange

Exchange:
The process in which consumers and producers agree to provide 1 type of item in return of another.
3 Forms of Exchange:
1.
Barter: The exchange of one set of goods for Another.
2. Money: Is an item, typically currency, and that is commonly accepted in exchange of goods and services and in settings debts.
3. Credit: a form of exchange that allows consumers to use items with promise of repayment over a specified period of time.
- Plastic money: credit cards.
- Value: Goods and services are assigned a value that can be expressed by an amount of money or price.
- Factors: Availability – Utility (usefulness).
Interdependence:
- The relationship of mutual reliance and influence among people, businesses, regions, and nations.
- Exchange of goods and services between those who have and those who don't. The principle of independence depends on un-met needs & wants.
Self Efficiency:
The ability to fulfill all one's needs and wants without assistance.
- True self efficiency is rare due to limited resources. Producing everything needs tremendous raw materials, tools, extensive skills and knowledge in variety of fields.
- Instead of self sufficiency, people tend to specialize in certain areas of production and rely on other for additional goods and services.
Benefits of interdependence:
Development in one region of the world or section in the economy influence those in other regions or
sectors.
Ex: increased construction would encourage a point company to increase production and
Risks of interdependence:
When goods and services become un-available.
Ex: During the Iraqi invasion to Kuwait in 1990, many people feared that a stoppage of oil production would weaken the economy of countries receiving oil supplies from Kuwait.

Chapter 2

Types of economic systems

- Nations Make choices in order to use their natural, human, capital and entrepreneurial resources efficiently.
- A nation's response to the 3 basic economic questions (How to produce? - What to produce? - For whom to produce?) are determined by its economic system.
- An economic system reflects the process a nation follows to produce goods and services.