What is Economics?

1. What is Economics? • The study of how people try to satisfy their needs and wants as a result of the choices they make. • It is the study of how people participate in society. • At its most basic, it’s about decision-making and the study of choice. • People can’t have everything they Need or Wantand as a result we must make choices. • Economics is not about money; it’s about the choices related to the use of money.

2. The reason we must choose is due to Scarcity. (limited amount of resources for unlimited wants) • Nations also have limited resources and must develop a method for choosing among alternatives. • What goods and services should we produce? How and for whom shall they be produced?

3. Two million Americans filed for bankruptcy in 2002, and it’s estimated that if trends continue, more than 5 million families will file for bankruptcy by the end of this decade. • Home foreclosures have more than tripled in less than 25 years. • College seniors have an average of 6.13 credit cards, and 31 percent of seniors have balances of $3,000 to $7,000. Nine percent have balances of more than $7,000. • 1,557,760 people filed bankruptcy in the year ended December 31, 2012

5. There are more than 10 million American families who are “unbanked,” meaning they lack even the basic checking or savings accounts with a bank or financial institution. • These families often rely on the fringe banking sector—payday lenders, check cashing stores—and are often victims of predatory lending. • http://www.bing.com/videos/watch/video/personal-bankruptcy-filings-up-30-percent/6z3st81 • Bankruptcy

6. The typical American family carries about $8,000 in credit card and household debt, with interest payments accounting for 14 percent of the family’s disposable income in 2001. • By the year 2012, 78 million Americans will be 65 or older, and one in three has no retirement savings. • U.S. household consumer debt profile: • Average credit card debt: $15,263 • Average mortgage debt: $147,591 • Average student loan debt: $31,646

7. Traditional financial advice states that every family should have enough money saved to cover at least six months of expenses. • Some experts even suggest having enough in the bank to cover expenses for a full year • Despite these recommendations, many American families have relatively little saved • The average savings account balance in the U.S. was $5,923 in 2011 • the average checking account balance in 2011 was $3,100,

8. In 2012 28 percent of American families have no savings. • Another 20 percent don't have enough saved to cover even three months worth of living expenses • just 43 percent have enough in savings to cover three months of expenses. • the average 401(k) balance hovers around $74,600, as of 2012 • the average account for those over age 50 is about $130,000 • half of all U.S. retirees have less than $25,000 in savings of any kind • How many elderly people do you see working?

9. By age 35, you should have a savings balance equal to your yearly salary. • By 45, you should have saved three times your annual salary • By 55, your savings balance should equal five times your yearly pay. • At retirement, your balance should equal about eight times your salary.

11. www.econosseur.com/economic-jokes.html

12. http://www.thedailyshow.com/full-episodes/246932/thu-august-20-2009-betsy-mccaugheyhttp://www.thedailyshow.com/full-episodes/246932/thu-august-20-2009-betsy-mccaughey

13. Needs vs. Wants Needs: basic requirement for survival. food, clothing, shelter, love, knowledge • Wants: an item we desire but is not essential to survive. • you need food to survive, you want pizza to satisfy the hunger

14. Scarcity vs. Shortages • Shortages occur when producers will not or can not offer goods or services at the current prices. • They can be both long term or short term. • Whereas scarcity always exists, goods and services are scarce because they are made from resources that are scarce. • Goods - a tangible commodity like a book, car or an I-pod. • Service - work that is performed for someone

17. Goods versus Services • A good is an economically useful tangible object that is used in production or intended for consumption, and that satisfies a need. • A service is the effort that goes into satisfying the needs of an individual or group, such as the medical care we receive, the instruction you get at school or the delivery of a pizza.

18. There are three types of resources are needed to produce goods. • Raw materials need to be transformed so they can be used as goods. • Human resources are the people who work to transform goods • Financial resources are the funds used to buy the material and human resources needed to produce goods.

19. Which goods and services are best for you? • Consumers are constantly making choices about goods and services. These choices are based on the benefit a consumer expects to gain from using a service or consuming a good.

20. GOODS, SERVICES & CONSUMERS • Consumer Good: is intended for final use by individuals. • Capital Good: a manufactured good that is used to produce other goods and services. • Durable Good: any good that lasts three years or more when it is used on a regular basis. • Nondurable Good: an item that lasts for less than three years when it is used on a regular basis

21. Consumers: people who use goods and services to satisfy wants and needs Consumption: the process of using up goods and services in order to satisfy wants and needs. Conspicuous consumption: the use of goods and services to impress others.

23. Assignment: Factors of Production • http://www.landandfreedom.org/econ/econ2.htm

24. Factors of Production The resources used to make all goods and services, the Factors are Land, Labor, and Capital LAND: “gifts of nature” or natural resources not created by human effort. Includes deserts, fertile fields, forests, cattle, whales, sunshine, and climate necessary to grow crops Labor: the effort a person puts into a task for which they are paid to perform.

25. CAPITAL: the tools, equipment and factories used in the production of goods and services. Human made resources. • The 2 categories of Capital are Physical and Human. • Physical – buildings and machines • Human – knowledge and skills learned through education and experience • FINANCIAL CAPITAL: the money used to buy the tools and equipment used in production.

27. OPPORTUNITY COST • Should I go to work today? Should I go to college after high school? Should the government spend money on a new weapon system? These are decisions that are made everyday; however, what is the cost of our decisions? What is the cost of going to work, or the decision not to go to work? What is the cost of college, or not to go to college? Finally what is the cost of buying that weapon system, or the cost of not buying that weapon? In economics it is called opportunity cost.

28. Opportunity Costs: • Opportunity cost is what we give up when we make a choice or when a resource is used for one purpose rather than another. You are supposed to go to work on Saturday morning, for which you would have been paid $100. BUT you oversleep and miss work.

29. Let’s look at the college example. We are all told to go to college so you can get a good education and that will translate into a good job. How do we know that college is such a good thing? How much college do we need? Let’s look at some numbers from a 2002 study on education from the Institute of Government and Public Affairs: • Higher Earnings - Earning a bachelor’s degree provides the average student with over $590,000 in future earnings. Similarly a professional degree provides a present value to the student of almost $1.25 million in future earnings.

30. Labor force participation rates and employment rates for people aged 25 and over increase with increased levels of education. • People with college experience contribute time and money to charitable causes at a higher rate than those with less education. • Increased levels of education are associated with the increased likelihood of voting or registering to vote.

31. In addition, college can provide many other benefits that are less tangible, and will help your child become a better-rounded individual. Benefits include increased self-awareness, the ability to think critically, and an opportunity to meet many different people. Overall, the entire college experience will provide your child with a lifetime of benefits”. • As we can see there are many benefits to a college education. So what are the costs? There are monetary costs for sure. Also, we will spend four or more years going to classes. We could be working and earning money instead of going to college. Finally we will be giving up free time for study time that could be used to do other things.

33. Trade-offs: an alternative choice, when spending income and time. • What is a possible decision you may have to make that would require this type of planning? • How do you decide your trade-offs?

34. Opportunity Cost Exercise • http://images.google.com/imgres?imgurl=http://www.econoclass.com/images/rebateform.jpg&imgrefurl=http://www.econoclass.com/whatswrongwithpicture.