1. Economics: Chapters
One and Two.
“The dismal science.”

2. What is the fundamental
economic problem?
 1. Scarcity.
 2. Economics is the study of how we can lesson the
problem of scarcity.
 3. How can we BEST use the worlds resources to help
the most people.

3. Needs v. Wants.
Needs
 1. A human need is
something that a
being must have to
live.
 2. Food, air, water,
shelter….
 3. It is the most
basic of the material
world.
Wants
 1. Wants go beyond
what is needed to
live.
 2. Human wants are
unlimited.
 3. We live in a world
of scarce resources.
 4. When needs and
wants collide it
creates SCARCITY.

4. Bill Gates Home?

5. What are the three economic
questions?
 1. WHAT to produce?
 2. HOW to produce it?
 3. For WHOM?
 4. Who answers these three questions in the United
States?
 5. The CONSUMER!
 6. CONSUMER SOVEREIGNTY!

6. Dictatorship or Democracy?
 1. If one person or small group answers
the three economic questions, then it’s a
dictatorship.
 2. If the consumers answer the economic
questions it’s a democracy.
 3. All market economies today are
democracies.

7. Which factor of production do
economists say is the most
important?
ENTREPRENEURSHIP!

8. Capital v. Labor Intensive
Economies
Capital
 1.It is the heavy use
of technology and
machines to operate
the economy.
 2.
Technology/Machine
s are very expensive
to buy and operate.
Labor
 1. The heavy use of
human labor to maintain
and build the economy.
 2. In poor countries
human labor is cheap
and plentiful.
 3. Human labor is much
slower and less
productive.

9. What is Production?
 1. Production is:
 Putting land, labor, and capital into
PRODUCTION

10. Value, Utility, and Wealth
 1. VALUE is worth that can be expressed
in dollars.
 2. Utility. In order to have VALUE it must
have a purpose or use.
 3. WEALTH is the accumulation of money
or goods with VALUE.

11. Better Productivity
Division of Labor
 1. This is the mass
production of products.
 2. Mass production
brought the price of
manufactured goods
down.
 3. This helped create a
consumer economy.
 4. Fredrick Taylor-Time
motion studies.
Specialization
 1. Breaking down
complex tasks down
into simple ones.
 2. This is the heart of
mass production and
the division of labor.
 3. What American is
famous for maximizing
the division of labor idea
for production?

12. Economic Interdependence
 1. Modern/Market economies must trade with other
regions of the world.
 2. No country/region has all the resources it needs to
grow.
 3. Countries that trade the most are the wealthiest.
 4. 80% of all the worlds trade is between the North
America, Europe, Japan, China, and Australia.
 “No country ever went broke because of good trade.”
Ben Franklin.”

13. Interdependence
Continues….
 1. Workers now compete internationally for
employment.
 2. Poor countries:
 Are overpopulated and have rock bottom wages
compared to wealthy countries.
 Have few taxes.
 Have weak or no environmental laws.

14. Adam Smith
 1. Revolutionary, economic thinker who championed
the free market economy.
 2. All the powerful European powers practiced
MERCANTILISM.
 3. Mercantilism is the control of the economy by the
government.
 4. The government controls trade and creates
monopolies.
 5. Mercantilism led to colonies.

15. The Wealth of Nations-1776
 1. There should be NO
government involvement with
business or trade.
 2. No government
monopolies.
 3. No government barriers
for individuals to go into
business for themselves.
 1. Who/What would regulate
business and trade?
 “ INVISIBLE HAND.”
 “Greed and Competition”
would regulate the markets.
 2. This “Hands Off” by
government was/is called:
 “LAISSEZ-FAIRE”

16. Adam Smith Continued….
 1. His book was published in
1776.
 2. What do you think the
American revolutionaries
would think of it?
 3. What caused the Boston
Tea Party?
 4. Which side do you think
Smith would take?
 1. Republicans today view
Adam Smith as one of their
main economic thinkers.
 2. Alexander Hamilton is also
a Republican founder.
 3. A Republican today is
known as a “Hamiltonian.”

17. Mel Fisher
 1. Is Fisher an entrepreneur?
 2. What eminent domain issue did he have to fight?
 3. Without the PROFIT MOTIVE, where would the
treasure be today?
 4. Should it be held only by a museum?
 5. Without investors, could Fisher have found the
treasure?

18. Economic Choices and
Decision Making
 1. Trade-Offs.
 2. Opportunity Costs.
 3. Production Possibilities.
 4. Cost-Benefit Analysis.
 5. The above helps us make rational choices.

19. Chapter Two-Economic
Systems
 Economics Systems:
 It is an ORGANIZED way of managing the four factors
of production to provide for the wants and needs of the
society.

20. Three Kinds of Economic
Systems
1. Traditional.
2. Command.
3. Market.

21. Traditional System-
Advantages
 1. Everyone knows their role/place.
 2. Exact certainty about WHAT, HOW, for
WHOM to produce.
 3. Custom, custom, and more custom.

22. Disadvantages
1. Discourages new ideas.
2. Stagnant society.
3. Lack of economic progress.

23. Advantages of a Command
Economy
 1. Economy can change directions quickly. Soviet
Union WWII.
 2. Guaranteed jobs.
 3. Most resources available to all, but limited.

24. Disadvantages
 1. Needs first, few wants provided.
 2. Hard work not rewarded.
 3. Large government bureaucracy.
 4. Little social/political freedom.

25. Advantages of a Free Market
 1. Adjusts quickly to consumer demand.
 2. Lots of individualism/innovation.
 3. Less government interference with business and
individuals.
 4. A lot of social/economic/political freedom.
 5. Great variety of consumer goods.

26. Disadvantages
 1.Little support for some people.
Homeless people….
 2. Worker uncertainty.
 3. Market failures-
Depressions/Recessions.

27. Mixed Economy
 1. Market failure and imperfect
competition makes it necessary for the
government to intervene in the economy.
 2. The “Invisible Hand” does work with
Monopolies and oligopolies.

28. Free Enterprise v. Capitalism
 1. F.E. is a competitive system that has no government
barriers for individuals to go into business for
themselves.
 2. Capitalism is a competitive system that involves
large financial investments in technology and
machinery.
 3. Both are motivated by the PROFIT MOTIVE.
 4. Private property and free exchange of
goods/services are also protected. Maryland v.
Dartmouth College.