Starter  Get with a group of 3-4 people near you.  Read the “What is economics really about?” handout.  Discuss the handout and decide how you will allocate (distribute) the 30 hours available on the dialysis machine.  Write down on your own sheet of paper how you feel about the way you distributed the hours and why it is easy/hard to do this.

Scarcity, Choices, and Possibilities Chapter

Economic Way of Thinking  All human behavior involves choice  It can be analyzed and understood logically  Consumers must make choices about what to buy and save  Producers must make choices about how and what to produce  Governments must make choices about how to spend public money  Scarcity drives decision making

Principles of Scarcity  Needs  Food, clothing, and shelter  Wants  TV’s, cell phones, ipods, cars, etc.  Always want more (no matter what you have)  Scarcity effects everyone  Resources are scarce  Choices have to be made on how the resources will be used

Scarcity: 3 Economic Questions  What will be produced?  Depends on resources available  How will it be produced?  Most efficient way to use the scarce resources to satisfy societies wants  For whom will it be produced?  Distribution  How much should they get  How will it be delivered

Factors of production  The economic resources needed to produce goods and services  Land- all natural resources  Labor-human time, effort, and talent  Captial-all resources made and used to produce good and services  Entrepreneurship- vision, skill, ingenuity, and willingness to take risks (most are innovators)

Making Choices  Motivations for choice  Motivated by incentives (self-interest, cost/benefit analysis)  No Free Lunch  “There is no such thing as a free lunch.”  Lose time, money, or some other thing you value

Trade-Off and Opportunity Cost  Trade-off  The alternative people give up when they make choices (sacrifice)  Opportunity Cost  The value of something that is given up to get something else that is wanted (the one thing given up by the trade-off, next best thing)  Robert Frost- “Path not taken”

Cost-Benefit Analysis  An approach that weighs the benefits of an action against its costs  One of the most useful tools for individuals, businesses, and governments when they need to evaluate the relative worth of economic choices

Analyzing Production Possibilities  Economic Models  Simplified representations of complex economic activities, systems, or problems  Production Possibilities Curve  A graph used by economists to show the impact of scarcity on an economy  Shows all possible combinations (opportunity cost for each choice)

Production Possibilities Curve

 It spotlights concepts that work in the real world of scarce resources  Efficiency  Underutilization