If you ever talk to someone who had taken an
economics course decades ago, most of them would tell
you economics is a difficult subject. My job as the
author of reffonomics.com is to make economics come
alive through the use of technology so that economics
becomes relatively easy to learn. So, what is the study
of economics? Click on the slide show below for the
answer.
economics course decades ago, most of them would tell
you economics is a difficult subject. My job as the
author of reffonomics.com is to make economics come
alive through the use of technology so that economics
becomes relatively easy to learn. So, what is the study
of economics? Click on the slide show below for the
answer.
Decisions are made by individuals, households, firms, governments, and
societies by trying to satisfy their unlimited wants with the limited
resources that are out there. When you look at only the economic
resources, though, these are the factors of production of land, labor,
capital, and entrepreneurship. To make these decisions, the entities look
at all of the trade offs and opportunity cost of their decisions.
societies by trying to satisfy their unlimited wants with the limited
resources that are out there. When you look at only the economic
resources, though, these are the factors of production of land, labor,
capital, and entrepreneurship. To make these decisions, the entities look
at all of the trade offs and opportunity cost of their decisions.
| Introduction to Economics |
Economic Systems:
There are three types of economic systems:
1. Market Economy
2. Command Economy
3. Traditional Economy
Each of these systems answer three questions:
1. WHAT should be produced?
2. HOW should it be produced?
3. FOR WHOM should it be produced?
In a MARKET ECONOMY:
1. WHAT should be produced is determined by the consumers
and producers.
2. HOW should it be produced is determined by businesses.
3. FOR WHOM should it be produced is determined by who is
willing and able to pay for the good or service.
In a COMMAND ECONOMY:
1. WHAT should be produced is determined by the government.
2. HOW it should be produced is determined by the government.
3. FOR WHOM should it be produced is determined by the
government.
In a TRADITIONAL ECONOMY:
1. WHAT should be produced is determined by custom or tradition.
2. HOW it should be produced is determined by who consumes
the good or service.
3. FOR WHOM should it be produced is for the individual who
produced the good or for the collective group.
Even though there are three economic systems, the most popular
type is a mixture of all three of these systems. This is called a
mixed economy, a system which incorporates a mixture of the
three types of economic systems (market, command, and
traditional). Even though most economies are a mixed economy,
you will notice many of them "lean" towards one of the three types
of economies.
For example, if you look on the graph below, you will notice there
are countries that "lean" towards a particular type of economic
system (market, command, or traditional). Click on the buttons on
the map below for a quick review of the three economics systems
and the three questions that all economic systems answer.
There are three types of economic systems:
1. Market Economy
2. Command Economy
3. Traditional Economy
Each of these systems answer three questions:
1. WHAT should be produced?
2. HOW should it be produced?
3. FOR WHOM should it be produced?
In a MARKET ECONOMY:
1. WHAT should be produced is determined by the consumers
and producers.
2. HOW should it be produced is determined by businesses.
3. FOR WHOM should it be produced is determined by who is
willing and able to pay for the good or service.
In a COMMAND ECONOMY:
1. WHAT should be produced is determined by the government.
2. HOW it should be produced is determined by the government.
3. FOR WHOM should it be produced is determined by the
government.
In a TRADITIONAL ECONOMY:
1. WHAT should be produced is determined by custom or tradition.
2. HOW it should be produced is determined by who consumes
the good or service.
3. FOR WHOM should it be produced is for the individual who
produced the good or for the collective group.
Even though there are three economic systems, the most popular
type is a mixture of all three of these systems. This is called a
mixed economy, a system which incorporates a mixture of the
three types of economic systems (market, command, and
traditional). Even though most economies are a mixed economy,
you will notice many of them "lean" towards one of the three types
of economies.
For example, if you look on the graph below, you will notice there
are countries that "lean" towards a particular type of economic
system (market, command, or traditional). Click on the buttons on
the map below for a quick review of the three economics systems
and the three questions that all economic systems answer.
In this lesson on Introduction to Economics you
will learn the following:
*What is the study of economics?
*What are the factors of production or economic
resources?
*What do the words "free" and "need" really
mean?
*What is the difference between trade offs and
opportunity cost?
*What are the different economic systems in the
world?
*What are the important terms in economics?
will learn the following:
*What is the study of economics?
*What are the factors of production or economic
resources?
*What do the words "free" and "need" really
mean?
*What is the difference between trade offs and
opportunity cost?
*What are the different economic systems in the
world?
*What are the important terms in economics?
In this unit on Introduction to Economics you have learned the following:
*What is the study of economics?
*What are the factors of production or economic
resources?
*What do the words "free" and "need" really
mean?
*What is the difference between trade offs and
opportunity cost?
*What are the different economic systems in the
world?
*What are the important terms in economics?
*What is the study of economics?
*What are the factors of production or economic
resources?
*What do the words "free" and "need" really
mean?
*What is the difference between trade offs and
opportunity cost?
*What are the different economic systems in the
world?
*What are the important terms in economics?
What is the Study of Economics?
What is the Difference between a Trade Off and an Opportunity Cost?
What are the Factors of Production?
Terms in Economics
As you can see from the list above nothing is "free" on this Earth.
This is why in this eTextbook you will always see the word "free"
written with quotation marks to remind you that nothing on this
Earth is "free." There is a cost to EVERYTHING! If you don't want
to use the word "free," you can always use the word gratuitous.
Gratuitous means it cost someone something, but it is given away
with no price paid. This doesn't mean there wasn't a cost. Price
paid and cost are two different terms.
This is why in this eTextbook you will always see the word "free"
written with quotation marks to remind you that nothing on this
Earth is "free." There is a cost to EVERYTHING! If you don't want
to use the word "free," you can always use the word gratuitous.
Gratuitous means it cost someone something, but it is given away
with no price paid. This doesn't mean there wasn't a cost. Price
paid and cost are two different terms.
As you can see from the list above there is a substitute for
everything. We aren't saying it is a good substitute or even a
suitable substitute, but there is a substitute for everything. If you
ever see the word "need" inside this eTextbook, it will be written
with quotations marks to remind you that you don't "need"
anything. Instead of using the word "need," use the word "want."
"Free"
You hear this term "free" all the time. Get this for "free." Buy this
and get this for "free". Click on the play button to find out what is
truly "free."
everything. We aren't saying it is a good substitute or even a
suitable substitute, but there is a substitute for everything. If you
ever see the word "need" inside this eTextbook, it will be written
with quotations marks to remind you that you don't "need"
anything. Instead of using the word "need," use the word "want."
"Free"
You hear this term "free" all the time. Get this for "free." Buy this
and get this for "free". Click on the play button to find out what is
truly "free."
Trade offs are the LIST of items you could have chosen outside of your final
choice or decision. Opportunity cost, though, is the next highest-valued
alternative or your foregone cost. To learn more about this, drag the
statements inside the blue rectangles on to the yellow rectangles that
indicate the order in which you would place them if these were your
options on what to do on a Friday night.
choice or decision. Opportunity cost, though, is the next highest-valued
alternative or your foregone cost. To learn more about this, drag the
statements inside the blue rectangles on to the yellow rectangles that
indicate the order in which you would place them if these were your
options on what to do on a Friday night.
Your Choice #1 (your decision) cost you Choice #2 (your opportunity
cost). If there was an accounting cost (a monetary cost) to your
decision, then this monetary cost also has an opportunity cost.
If your first choice is to Go on a Date and your second choice was to
Go Out with Friends, then your opportunity cost to Go on a Date is the
giving up of Going Out with Friends. This is also known as your
foregone cost or your next-highest valued alternative.
Here is another example. If I take my wife to the movies, my trade offs
of my time with my wife could have been, staying home and watching
TV with her, going on a long walk with her, or visiting our friends.
Let' say my next-highest valued alternative is staying home with my
wife to watch TV. This is what I am giving up to take her to the movies.
Watching TV is thus my opportunity cost.
I also incur an accounting cost of taking my wife to the movie. Let's
say instead of taking my wife to the movies, I could have used the
money to buy dog food, to put gas in my car, to save the money, and
so on. These are my trade offs. Of these trade offs, let's say my
opportunity cost (Choice #2) is purchasing dog food. So, if I take my
wife to the movies, then the cost of the movie is what could I have
done with my time if I didn't take my wife to the movie plus giving up
that money (opportunity cost) that I could have spent on dog food.
Since a dog is a "man's best friend," I decide not to take my wife to
the movies. Sorry, sweetheart, there is a cost to everything! Rebel
our dog is happy though because we stay home with him and he gets
fed. I pay for it because my wife is now mad at me for not taking her
to the movie. Oh, well, life is based upon decisions. Some decisions
are better than others, but each has its own cost. The costs you have
to look out for are the hidden costs of that decision.
When a firm makes a decision, it is no different. The individuals in the
firm write down all of the choices. They come up with their top choice
(their decision) and the next choice is the firm's opportunity cost. This
is what it has to give up in order to obtain the first choice.
"Need"
You hear this term "need" all the time. I "need" this or I "need" that.
Click on the play button to find out what you truly "need."
cost). If there was an accounting cost (a monetary cost) to your
decision, then this monetary cost also has an opportunity cost.
If your first choice is to Go on a Date and your second choice was to
Go Out with Friends, then your opportunity cost to Go on a Date is the
giving up of Going Out with Friends. This is also known as your
foregone cost or your next-highest valued alternative.
Here is another example. If I take my wife to the movies, my trade offs
of my time with my wife could have been, staying home and watching
TV with her, going on a long walk with her, or visiting our friends.
Let' say my next-highest valued alternative is staying home with my
wife to watch TV. This is what I am giving up to take her to the movies.
Watching TV is thus my opportunity cost.
I also incur an accounting cost of taking my wife to the movie. Let's
say instead of taking my wife to the movies, I could have used the
money to buy dog food, to put gas in my car, to save the money, and
so on. These are my trade offs. Of these trade offs, let's say my
opportunity cost (Choice #2) is purchasing dog food. So, if I take my
wife to the movies, then the cost of the movie is what could I have
done with my time if I didn't take my wife to the movie plus giving up
that money (opportunity cost) that I could have spent on dog food.
Since a dog is a "man's best friend," I decide not to take my wife to
the movies. Sorry, sweetheart, there is a cost to everything! Rebel
our dog is happy though because we stay home with him and he gets
fed. I pay for it because my wife is now mad at me for not taking her
to the movie. Oh, well, life is based upon decisions. Some decisions
are better than others, but each has its own cost. The costs you have
to look out for are the hidden costs of that decision.
When a firm makes a decision, it is no different. The individuals in the
firm write down all of the choices. They come up with their top choice
(their decision) and the next choice is the firm's opportunity cost. This
is what it has to give up in order to obtain the first choice.
"Need"
You hear this term "need" all the time. I "need" this or I "need" that.
Click on the play button to find out what you truly "need."
Economics then is the study of how entities try to solve the problem of
unlimited wants vs. limited economic resources. Economic resources are
the factors of production used in producing goods or providing services.
These two concepts of economic resources and factors of production are
synonymous.
Because unlimited wants > availability of economic resources, it is almost
as if there is a fight that goes on inside your head between what to do with
your unlimited wants and the limited resources that are out there because
there is always a cost to EVERYTHING.
unlimited wants vs. limited economic resources. Economic resources are
the factors of production used in producing goods or providing services.
These two concepts of economic resources and factors of production are
synonymous.
Because unlimited wants > availability of economic resources, it is almost
as if there is a fight that goes on inside your head between what to do with
your unlimited wants and the limited resources that are out there because
there is always a cost to EVERYTHING.
>
Cost to
be paid
be paid
So what are these economic resources or factors of production that are
used in the production process? Click on the right arrow button below to
find out.
used in the production process? Click on the right arrow button below to
find out.
The Factors of Production or Economic Resources that are used to
produce other goods or services are the natural resources (land),
human resources (labor and entrepreneurship), and non-human
resource (capital). Test your knowledge on this by dragging each item
below and placing it in to the appropriate column in the table below.
produce other goods or services are the natural resources (land),
human resources (labor and entrepreneurship), and non-human
resource (capital). Test your knowledge on this by dragging each item
below and placing it in to the appropriate column in the table below.
What are the Economic Systems of the World and How Are Decisions Made?
Important terms that will be used throughout the course are found
in the short slide show below. Press the play button to learn these
terms.
in the short slide show below. Press the play button to learn these
terms.
The Invisible Hand
| Microeconomics vs. Macroeconomics |
| Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award |
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Post Hoc Fallacy
Fallacy of Composition
| Normative vs. Positive Statements |