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what is economics and money
Transcript of what is economics and money
What is Economics?
the study of how people get their wants and needs met by making choices
The 3 basic questions
Our Economic Resources
4 Factors of Production
Types of Money
COMMODITY: has value in itself
ex: cow, sea shell
REPRESENTATIVE: stands for something of value
ex: check, IOU
FIAT/LEGAL TENDER: gov't says
it is acceptable to pay debts
ex: US currency
Functions of Money
STORE OF VALUE: keeps value if stored, not spent
STANDARD OF VALUE: used to compare 2 goods
MEDIUM OF EXCHANGE: consistent measure that is accepted as payment/trade
Characteristics of Currency
coins and bills that
are used as money
but we only have
we want our benefits to exceed our costs
marginal cost: How much more does it cost us to make 1 more unit of a good?
marginal benefit: the additional benefit we gain from consuming
this is called
1) WHAT TO PRODUCE?
Guns or butter?
Make more consumer
or military goods?
2) HOW TO PRODUCE?
what tools, machines, assembly line, divide up work?
3) FOR WHOM
Utility - the usefulness of a good
the natural resources
the man-made resources
Person who combines land, labor, capital to create goods and services
ex: Wheat, Oil
use specialization -- becoming an expert at a job and
division of labor -- divide up jobs
1) Physical - tools/machines
2) Human - skills/knowledge
ex: Bill Gates, Steve Jobs
What is the difference between Labor and Entrepreneurship?
Entrepreneurship takes a risk, has the idea. Labor is just working (to get paid)
by combining the land, labor, capital, and entrepreneurship - companies are able to make goods and services
consumer goods: goods that we use.
What is bartering?
why don't we just barter?
the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.
trade-off: all other alternatives given up
The fundamental problem of economics is:
A. to establish an equitable system of personal and business taxation.
B. to establish a democratic political framework for the provision of social goods and services.
C. the scarcity of factors of production relative to the unlimited wants of humans.
D. to achieve a more equitable distribution of money income in order to mitigate poverty.
Which of the following is an example of an investment in human capital?
A. A company builds a new factory.
B. A state puts in a new highway.
C. A business trains a new employee.
D. A country builds new bridges.
A headline reads: "Consumers demand new cell phones with greater functionality."
What basic economic question is being addressed in this headline?
A. for whom to produce
B. how to produce
C. when to produce
D. what to produce
TYPES OF MONEY
In each of the following cases, tell which kind of money is being described, and explain how you can tell.
C = Commodity R = Representative LT = Fiat/Legal Tender
1. During the Civil War, the United States government issued millions of greenbacks, paper money used to pay all debts.
2. Some Native Americans used seashells as a medium of exchange.
3. The Federal Reserve system issues Federal Reserve notes, which are legal to pay all debts.
4. Gold certificates were once issued by the Unites States government. They could be exchanged for the amount of gold equal to the value of the certificate.
when the marginal benefits of an action equals or exceed the marginal costs...
rational decisions occur
*people respond to positive AND negative incentives in predictable ways.
Absolute and Comparative
why do entrepreneurs take risks?