What is Economics? The study of how people satisfy their wants and needs by the choices they make

2 Categories of Economics MicroeconomicsMacroeconomics The study of the choices of households, companies, and individual markets The behavior of entire economies (nations )

Basic Economic Problem SCARCITY People have unlimited wants and needs but have limited resources. Forces people to make choices in how to allocate their resources effectively to get what they want.

Who Makes Economic Decisions? Consumers Producers

SCARCITY We have _________ wants and needs. We have _______ resources. Therefore, we must make ______

Economic Choices GOODSSERVICES Physical objects Examples: Pizza, Car, Shoes Physical objects Examples: Pizza, Car, Shoes  Actions or activities performed by a fee Examples: Lawyer, Hairstylist, Cab driver  Actions or activities performed by a fee Examples: Lawyer, Hairstylist, Cab driver

Factors of Production Natural Resources (land) Human Resources (labor) Capital Resources (capital) Entrepreneurship

Natural Resources (land) Items provided by nature, in the Earth or the Earth’s atmosphere, that can be used to produce goods and services Must be scarce and some form of payment is necessary for its use

Human Resources (labor) Any human effort that goes into the production of a good or service. Can be physical or intellectual.

Capital Resources Manufactured materials used to create products, including capital goods AND the money used to purchase them. Capital Goods – The buildings, structures, machinery, and tools used in the production process

Entrepreneurship  Assembles the factors of production  Takes the necessary risk in starting a new business or developing an innovative product or service

Opportunity Cost Trade offs and Opportunity Costs— –Trade off—One good is sacrificed for another; the sacrifice is a trade off. –Opportunity Cost—The value of the next best alternative given up to obtain an item –Most choices have many alternatives –They all are trade offs but only the 2 nd best choice is the opportunity cost.

Opportunity Costs Example You have $50 and it’s Friday night:  Go to the Perry High School football game  Go out on a date  Pizza and games with the family  Go to the mall and a movie with friends  Get all of your homework for Monday done early

Cost/Benefit Analysis Friday Night ChoicesBenefits: Financial, Social, Educational, Future, Family Costs: Financial, Social, Educational, Future, Family Perry High football game Date Family Night Mall & Movie Homework

Production Possibilities Trade offs and opportunity costs can be illustrated using a Production Possibilities Curve. PPC—shows all the possible combinations of 2 goods or services. Two assumptions: 1. Fixed resources 2. Maximum efficiency.

Current Production Possibilities Current Production Possibilities Curve—Shows the possible production options that would be available if a company concentrated their resources on two possible alternatives. EconomyLuxury A05 mil B2.75 mil4.25 mil C4.5 mil3 mil D6 mil1.5 mil E7 mil0

Future Production Possibilities Real World—Technology and the factors of production do NOT remain constant. Production curve shifts when technology/new resources become available. The curve “shifts to the right” to show new production possibilities.

Productivity Definition: The level of output that results from a given level of input. Productivity Goal Efficiency – The use of the smallest amount of resources to produce the greatest amount of output