Unit 1: Basic Economic Concepts “Econ, Econ” Modules 1-4 Week 1 Download the PDF file For Krugman’s Macro Economic Textbook on syllabus Econ

You have reading assignments for this next week. Modules 1-4. You need to do what works best for you, take notes over the reading or copy at a minimum the RED SLIDES. The gradient green slides are ones we used in class, they have instructions, questions, daily objectives. I put little star/diamonds in red on homework slides The white plain ones are informational and allow you to go to a deeper rigor or to clarify or may just be thoughts, I EXPECT YOU TO HAVE SOME FORM OF NOTES FOR EVERYDAY IN CLASS.

Tuesday: Receive the syllabus and release for AVID Index card with name, period and 5 things about you Discussion on the basic concepts using graphs- focus on PPC, ADAS, fiscal policy and NRU Wednesday: assigned module 1 of Krugman’s text Visit with one another and discussion on success

1-5-17 Thursday Objective: be able to list and describe the 4 factors of production, be able to discuss scarcity and opportunity cost and be able to analyze different methods societies can chose how to allocate the limited resources. EQ: What role does scarcity play in economics? Do Now: Check to see if you have: turned in the syllabus, AVID release, Downloaded the PDF file for text, do you know where pencils, paper, pens and index cards are?

Characteristics of the Ideal Classroom Expectations, Get to know you Characteristics of the Ideal Classroom Fun and Meaningful Activities No Busy Work Manageable Assignments Energy and Enthusiasm Humor 6. Varied Instruction with Group work 7. Clear Expectation 8. Student Input Valued 9. Respect 10. Structure and Organization

What is scarcity? What is opportunity costs? What are the 4 factors of production? Are resources equally divided among countries? How do countries decide what to use the resources for? What are 3 questions every society must answer? How should countries decide on who gets to consume?

AP Economics “Econ, Econ” You did not learn your ABC’s overnight or without practice. You did not learn to tie your shoes without repetition and even little sayings. YOU CANNOT LEARN ECONOMICS WITHOUT PRACTICE. “Econ, Econ” Econ

3 FACTS! Econ is a skills based course. Learning methodology resembles algebra more than history. You MUST complete assignments BEFORE class Class time should be about sharpening skills, rather than just introducing/reviewing concepts. Econ is a very intuitive subject, but it requires PRECISION. Many FRQ are similar to geometric proofs and cannot be “fluffed”

Unit 1: Basic Economic Concepts SECTION 1: MODULES 1-4 PAGES 1-47 READ THE MODULES BEFORE CLASS AS ASSIGNED Graphs you must learn for this unit: production possibilities curve, business cycle, and you must be able to determine comparative advantage as well as create a table or graph for it.

The Core Principle Individual choices from all the options, we have to make a choice. At a more realistic level it is about how society makes choices and the interaction between countries.

What is Economics in General? Economics is the science of scarcity. Scarcity is the condition in which our wants are greater than our limited resources. Since we are unable to have everything we desire, we must make choices on how we will use our resources. In economics we will study the choices of individuals, firms, and governments. Economics is the study of _________. choices

(Study of how individuals and societies deal with ________) Examples: You must choose between buying jeans or buying shoes. Businesses must choose how many people to hire Governments must choose how much to spend on welfare. Economics Defined Economics-Social science concerned with the efficient use of limited resources to achieve maximum satisfaction of economic wants. (Study of how individuals and societies deal with ________) scarcity

Economic systems Macro economics does not study, in depth, the different economic systems. However, you need to have a basic understanding of the various systems- primarily: Market economy Command economy

Keep in Mind… McConnell and Brue, page 6- “ In spite of the practical benefits, economics is mainly an academic, not a vocational, subject…economics is NOT primarily a how-to-make-money area of study.”

Marginal Analysis In economics the term marginal = additional “Thinking on the margin”, or MARGINAL ANALYSIS involves making decisions based on the additional benefit vs. the additional cost. For Example: You have been shopping at the mall for a half hour, the additional benefit of shopping for an additional half-hour might outweigh the additional cost (the opportunity cost). After three hours, the additional benefit from staying an additional half-hour would likely be less than the additional cost.

Marginal Analysis Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home” In reality the decision making process started with “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.” The MARGINAL ANALYSIS approach to decision making is more comely used than the “all or nothing” approach.

Marginal Analysis Notice that the decision making process wasn’t “should I go to the mall for 3 hours or should I stay home” You will continue to do something until the marginal cost outweighs the marginal benefit. In reality the decision making process was “should I go to the mall at all.” Once you are there you thought “should I stay for an additional half hour or should I go.” The MARGINAL ANALYSIS approach to decision making is more comely used than the “all or nothing” approach.

Resources are ALL scarce A resource is: List and describe the 4 categories called factors of production

Goods vs. Services Give examples… Goods= physical objects that satisfy needs and wants Consumer Goods- created for direct consumption (example: pizza) Capital Goods- created for indirect consumption (oven, blenders, knives, etc.) Goods used to make consumer goods Services= actions or activities that one person performs for another (teaching, cleaning, cooking)

Friday Objective: Be able to demonstrate how to enter the room, sign in, start on planner and notes. be able to identify them in the slide sample (27) Homework: Finish reading section 1, modules 2-4. We will cover them next week and quiz on Friday. Do Now: get your notebook out and put the EQ, Date and summarize what you have learned on scarcity, opportunity costs, and 4 factors of production, if you took notes while you read then just annotate those.

The 4 Factors of Production

The Four Factors of Production Producing goods and services requires the use of resources- DUH!. ALL resources can be classified as one of the following four factors of production: Land Labor Capital Entrepreneurship

The Four Factors of Production Land = All natural resources that are used to produce goods and services. Anything that comes from “mother nature.” (Water, Sun, Plants, Oil, Trees, Stone, Animals, etc.) Labor = Any effort a person devotes to a task for which that person is paid. (manual laborers, lawyers, doctors, teachers, waiters, etc.)

The Four Factors of Production Two Types of Capital: 1. Physical Capital- Any human-made resource that is used to create other goods and services (tools, tractors, machinery, buildings, factories, etc.) 2. Human Capital- Any skills or knowledge gained by a worker through education and experience (college degrees, vocational training, etc.)

The Four Factors of Production Entrepreneurship= ambitious leaders that combine the other factors of production to create goods and services. Examples-Henry Ford, Bill Gates, Inventors, Store Owners, etc. Entrepreneurs: Take The Initiative Innovate Act as the Risk Bearers So they can obtain _________. PROFIT Profit= Revenue - Costs

The Factors of Production

The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

Accountants vs. Economists Accountants look at only EXPLICIT COSTS. Explicit costs are the traditional “out-of pocket costs” of decision making. Ex: Going to Disneyland Economists look at the EXPLICIT COSTS and the IMPLICIT COSTS. Implicit costs are the opportunity costs such as forgone time and forgone income. Ex: Payton Manning leaves the NFL to open a taco shop.

Review with your neighbor… Define scarcity Define Economics Identify the relationship between scarcity and choices Explain how Macroeconomics is different than Micro Explain the difference between positive and normative economics Identify the 5 main assumptions of Economics Give an example of marginal analysis Name 10 Disney movies

Micro vs. Macro MICROeconomics- MACROeconomics- Study of small economic units such as individuals, firms, and industries (competitive markets, labor markets, personal decision making, etc.) MACROeconomics- Study of the large economy as a whole or in its basic subdivisions (National Economic Growth, Government Spending, Inflation, Unemployment, etc.)

How is Economics used? Positive vs. Normative Economists use the scientific method to make generalizations and abstractions to develop theories. This is called theoretical economics. These theories are then applied to fix problems or meet economic goals. This is called policy economics. Positive vs. Normative Positive Statements- Based on facts. Avoids value judgements (what is). Normative Statements- Includes value judgements (what ought to be).

5 Key Economic Assumptions Society’s wants are unlimited, but ALL resources are limited (scarcity). Due to scarcity, choices must be made. Every choice has a cost ( opportunity cost) (a trade-off). Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in their own “self-interest.” Everyone acts rationally by comparing the marginal costs and marginal benefits of every choice Real-life situations can be explained and analyzed through simplified models and graphs.

Scarcity

Economic Terminology Utility = Satisfaction! Marginal = Additional! Allocate = Distribute!

What’s the price? vs. How much does that cost? Scarcity vs. Shortages Scarcity occurs at all times for all goods. Shortages occur when producers will not or cannot offer goods or services at current prices. Shortages are temporary. Price vs. Cost What’s the price? vs. How much does that cost? Price= Amount buyer (or consumer) pays Cost= Amount seller pays to produce a good Investment Investment= the money spent by BUSINESSES to improve their production Ex: $1,000 new computer, $1 Million new factory

Paul Solman: The Butcher, the Baker, and the Brewer

Analyzing Choices

Which flight should you choose? Why? Given the following assumptions, make a rational choice in your own self-interest (hold everything else constant)… 1. You want to visit your friend for a week 2. You work every weekday earning $100 per day 3. You have three flights to choose from: Thursday Night Flight = $275 Friday Early Morning Flight = $300 Friday Night Flight = $325 Which flight should you choose? Why?

Trade-offs and Opportunity Cost ALL decisions involve trade-offs. Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. (Examples: going to the movies) The most desirable alternative given up as a result of a decision is known as opportunity cost. What are trade-offs of deciding to go to college? What is the opportunity cost of going to college? GEICO assumes you understand opportunity cost. Why?

Paul Solman: Opportunity Lost http://glencoe.mheducation.com/sites/0025694212/student_view0/chapter1/paul_solman_videos.html Paul Solman: Opportunity Lost

Paul Solman: Basic Economic Assumptions 43