11/22/2016Ch 1.11 “Economy is the art of making the most of life.” Gary Becker, University of Chicago. What is Economics?

11/22/2016Ch 1.12 Scarcity and Factors of Production How would you define economics ? What is a need? What is a want?

11/22/2016Ch 1.13 What is a need? Necessary for survival. What is a want? Not necessary for survival. How we seek to define our needs. Scarcity and Factors of Production

11/22/2016Ch 1.14 Define economics - The study of how people make choices to meet their wants. Scarcity and Factors of Production

11/22/2016Ch 1.15 Define goods -physical objects Scarcity and Factors of Production

11/22/2016Ch 1.16 Define service - action of one person performed for another Scarcity and Factors of Production

11/22/2016Ch 1.17 Goods and services are used to satisfy wants and needs. Wants and needs are unlimited, but the resources used to produce them are scarce. Scarcity and Factors of Production

11/22/2016Ch 1.18 Scarcity versus shortage Shortage – producers will not or cannot offer goods or services at the current prices Scarcity and Factors of Production

11/22/2016Ch 1.19 What is Economics? How is oil scarce? What problems does this cause? Scarcity and Factors of Production

11/22/2016Ch Scarcity versus shortage Shortages can be temporary Scarcity of goods and services always exists, because resources to make them are scarce. Scarcity and Factors of Production

11/22/2016Ch Factors of production The resources used to make goods and services 1. Landnatural resources Scarcity and Factors of Production

11/22/2016Ch Factors of production 2. Laboreffort for which a person is paid Scarcity and Factors of Production

11/22/2016Ch Capital Any human-made resource used to produce goods and services. Physical capital (capital goods) Buildings, machines, tools Lead to productivity Scarcity and Factors of Production

11/22/2016Ch Human capital Knowledge and skills of workers 4. Entrepreneurs (p. 165) Use the other factors of production and take risks to make a profit Scarcity and Factors of Production

11/22/2016Ch Review: Define economics. What is the difference in a need and a want? Name the 4 factors of production. Scarcity and Factors of Production

11/22/2016Ch Opportunity Costs Does every decision you make involve trade-offs? How can a decision-making grid help you identify the opportunity cost of a decision? How will thinking at the margin affect decisions you make?

11/22/2016Ch TINSTAAFL There isnosuchthingasa free lunch! Opportunity Costs

11/22/2016Ch Trade-offs alternatives given up when we make a choice Trade-off decisions are made by individuals, businesses, and societies Opportunity Costs

11/22/2016Ch Trade-offs When societies or countries make trade-off decisions, economists refer to it as “guns or butter”. Opportunity Costs

11/22/2016Ch Opportunity cost most desirable alternatives given up as a result of a decision we make Opportunity Costs

11/22/2016Ch What are opportunity cost? What opportunity cost decisions have you made today? Opportunity Costs

11/22/2016Ch Decision-making Grid Alternatives Sleep late Up early to study Benefits gained Opportunity cost Benefits forgone more sleep more energy better grade approval personal satisfaction extra study time extra sleep time better grade approval personal satisfaction more sleep more energy Opportunity Costs

11/22/2016Ch When you decide how much more less to do, you are thinking at the margin. Options Benefits Opportunity Cost 1 st hr extra study C on test1 hour of sleep 2nd hr extra study B on test2 hours of sleep 3rd hr extra study A on test3 hours of sleep Opportunity Costs

11/22/2016Ch Review What are trade-offs? Define opportunity cost. What does TINSTAAFL mean? What is thinking at the margin? Opportunity Costs

11/22/2016Ch Production Possibilities Curves What is a production possibilities graph? How do production possibilities graphs show efficiency, growth, and cost? Why are production possibilities frontiers curved lines?

11/22/2016Ch A production possibilities graph shows alternative ways that an economy can use its resources. Production Possibilities Curves

11/22/2016Ch Watermelons (millions of tons) Shoes (millions of pairs) Production Possibilities Graph Watermelons (millions of tons) 0 a (0,15) b (8,14) A production possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) (p.15) Production Possibilities Curves

11/22/2016Ch Law of increasing cost – trade- offs become more expensive. Some resources are better suited for one use than another. Causes the PPF to curve. Production Possibilities Curves

11/22/2016Ch The production possibilities frontier is the line that shows the maximum possible output for that economy. Production Possibilities Curves

11/22/2016Ch Shoes (millions of pairs) Watermelons (millions of tons) Production Possibilities Graph g (5,8) A point of underutilization c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Efficiency (p. 16) Using resources to maximize the production of goods and services. Production Possibilities Curves

11/22/2016Ch Shoes (millions of pairs) Watermelons (millions of tons) Production Possibilities Graph T Future production Possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Growth (p. 16) More resources or technology can increase output and create growth. The entire curve “shifts to the right.” Production Possibilities Curves

11/22/2016Ch Watermelons (millions of tons) Shoes (millions of pairs) Production Possibilities Graph Watermelons (millions of tons) c (14,12) d (18,9) The graph shows the cost of producing more of one item. To move from point c to point d has a cost of 3 million pairs of shoes. Opportunity cost. Production Possibilities Curves

11/22/2016Ch Review Define efficiency, growth, and cost? Why are production possibilities frontiers curved lines? Production Possibilities Curves