Chapter 1 SCARCITY (SECTION1) FACTORS OF PRODUCTION TRADE-OFFS + OPPORTUNITY COST (SECTION 2)

What is Economics? Study of how people choose to use scarce resources to satisfy their wants. What fundamental qualities make up Economics? Wants versus Needs Leads to Scarcity

Scarcity The situation that exists when there are not enough resources to meet human wants. Wants are not only unlimited, they are also ever changing. Since wants are unlimited and resources are scarce, choices have to be made about how best to use these resources. Scarcity, then affects which goods are made and which services are provided.

Scarcity activity Take a few minutes to look at the table below and record your responses. Say you just moved into a new apartment. You’ve saved $1200 to go shopping for furniture and appliances. What do you buy? ITEMPRICE Kitchen table and chairs200 TV set150 Silverware25 Towels35 Couch300 Desk and Chair175 Bed350 Computer400 Car300 Dishes45

Quick Hitters Wants: are desires that can be satisfied by consuming a good or service Needs: are things, like food, clothing, and shelter, that are necessary for survival Goods: physical objects that can be purchased, such as food, clothing, and furniture Services: work that one person performs for payment Consumer: person who buys goods or services for personal use Producer: person who makes goods or provides services

Three Economic Questions What will be produced? (foods, tvs, cars, computers) How will it be produced? (methods of production, labor) For whom will it be produced? (How much should people get? How should their share be delivered?)

Factors of Production

Factors of production cont. Factors of production: the economic resources needed to produce goods and services. Divided into 4 parts: Land, Labor, Capital, and Entrepreneurship All these factors have one thing in common… their supply is LIMITED!

Factors cont. Land: includes all natural resources found on or under the ground that are used to produce goods and services. Examples: Forests, minerals, water, oil, and gas Labor: all human time and effort, and talent that go into the making of products. Examples: Construction workers, garbage collectors, teachers, and doctors Entrepreneurship: combo of vision, skill, ingenuity, innovators, and risk takers. They risk time, effort, creativity in hope of making a profit.

Factors cont. Capital: all the resources made and used by people to produce and distribute goods and services. Examples: Tools, factories, machinery are forms of capital… Offices, stores, airplanes are too! Capital is all of a producer’s physical resources which is sometimes called physical capital, or real capital. Workers invest in human capital, the knowledge and skills gained through experience. Includes college degrees, and good job training. More human capital = more productivity.

Discussion questions What is the main difference between land and capital as a factor of production? Which of the factors of production is most important?

Factors of Production Group Activity Identify the factors of production for a new product or service. Think of a new product or service that YOU would like to have in your life. It can be realistic (a computer that offers homework help) or fictional (a food that tastes like French fries but has the nutrition of broccoli) Identify the specific factors of production needed to manufacture this product or provide the service. Also create a little visual showing how the factors of production would be used. Ill give you minutes to work on this activity.

Quick Hitters CH.1 Section 2 Economize : means to make decisions according to what you believe is the best combination of costs and benefits. “Cut costs” or “do something cheaply” Incentives: benefits offered to encourage people to act in certain ways. Utility: the benefit or satisfaction gained from the use of a good or service. When making decisions or “economize”, people consider both incentives and utility.

“No Such Thing As A Free Lunch” Every choice involves costs. These costs take the form of money, time, or some other thing you may value. Example… You got a free lunch at chipotle… You paid nothing but the trash will end up at a dump at someone else’s cost. Or the cost of your meal will cost chipotle for labor and food costs.. Not free for chipotle but “Free” to you.

Opportunity Cost The opportunity cost of a decision is the value of the next best alternative, or what you give up by choosing one alternative over another. The alternative that you give up when you make an economic choice is called a TRADE-OFF, they involve giving up some of one thing to gain more of another. Example: Mike went to Colorado to visit friends.. The opportunity cost of that decision is the income he could have received if he didn’t go on the trip. However, if Mike decided to work the opportunity cost of that decision would be the trip that he didn’t take.

Cost-Benefit Analysis The practice of examining the costs and the expected benefits of a choice an as aid to decision making is called cost-benefit analysis. CBA is one of the most useful tools for individuals, businesses, and governments when they need to evaluate the relative worth of economic choices. Take a look at figure 1.2 on page 15 of your textbook for example.

Marginal Costs and Benefits Marginal Cost: is the cost of using one more unit of a good or service. Marginal benefit: is the benefit or satisfaction received from using one more unit of a good or service. Example.. From figure 1.2 Max’s marginal cost would be the loss of one more hour with his friends if he studies that extra hour. Max’s marginal benefit of that extra hour of studying would improve his grade from a B to a B+.

Section Assessment Answer the following questions individually on page 17 in the textbook. #2, 3, 7, 9, and 10. Turn in when completed.

Ch1 Section 3 Quick hitters Economic models: simplified representations of complex economic activities, systems, or problems to clarify trade-offs. Production Possibilities curve (PPC): a graph used to illustrate the impact of scarcity on an economy by showing the maximum number of goods or services that can be produced using limited resources. Efficiency: the condition in which economic resources are being used to produce the maximum amount of goods and services Underutilization: the condition in which economic resources are NOT being used to their full potential.

4 PPC Assumptions 1. Resources are fixed. There is no way to increase the availability of land, labor, capital, and entrepreneurship. 2. All resources are fully employed. There is no waste of any of the factors of production. (the economy is running at full production) 3. Only two things can be produced. This assumption simplifies the situation and suits the graphic format, with one variable on each axis. 4. Technology is fixed. There are no technological breakthroughs to improve methods of production.

Analyzing graphs Lets look at Figures 1.3, 1.4, 1.5, 1.6 to help better understand what we learn from PPCs.

CH.1 Section 4 Microeconomics: the study of the behavior of individual players in an economy, such as individuals, families, and businesses. Macroeconomics : study of the behavior of the economy as a whole and involves topics such as inflation, unemployment, aggregate demand, and aggregate supply.

Section 2 &3 Assessment Turn in when completed along with Section 2 questions on page 17 # 2,3,7,9,10 Id like you to answer the following questions on page 23.. # 2,3,4,7,9,10

Video Resources PPC Shift in PPC