WELCOME C&E STUDENTS Grab today’s handouts. Roll Call Question: “Would you rather eat 100 ants or 20 beetles?” Is your notebook organized?

Warm Up What is the difference b/w something you want & something you need? What is expensive in our society? Why do you think this is?

Unit 5 Personal Financial Literacy Objective 5.1: To Identify the basic principles of economics: needs, wants, scarcity, trade off, and opportunity cost.

Desert Island Imagine you are moving to a desert island with no kind of infrastructure. Write down what you will.. Want Need

I. What is economics Needs and Wants Need- something necessary for survival Want- desire not necessary for survival Economics- the study of how people seek to satisfy needs and wants with limited resources Macroeconomics= study of economy as a whole and decision making by large units, such as governments or whole industries or societies Microeconomics= study of behavior and decision making of small units, such as individuals and businesses

II. Scarcity Scarcity- limited quantity of a resource to meet unlimited wants This is the driving force of economics A shortage occurs when producers will not or cannot offer goods or services at the current prices A shortage and scarcity are not the same thing. Goods and Services Goods- physical objects Services- actions or activities that one person performs for another

III. Trade-offs A resource can only be used once. It cannot be used to produce something else Trade-off- the process of giving up one desire in order to satisfy another desire Ex: $100 vs. give girlfriend a present Ex: 2 more hours of sleep vs. studying for test

IV. Opportunity Costs Opportunity cost- value of what is given up in a trade-off (the next best option) Ex: Buying the Assassin’s creed game Cost not having the $60 to spend on something else Ex: College cost is $ of college and amount of $ gained from working instead Remember: “ An opportunity cost is an opportunity lost.” Immediate gratification- when you give up something in the long-term to satisfy an immediate want

What would be the opportunity cost of: Buying a new iPhone at $299? Staying home to study on Sunday afternoon? Having a child while in high school?

Why are all goods and services scarce? Some goods cost more than others All resources are scarce Some things are needs and others are wants Some people want to have more goods than others

Of the following scenarios, which is an example of immediate gratification? An individual spends $100.00 on a pair of shoes instead of putting that money into a savings account An individual puts money into a savings account to use to buy a car when he turns 16 An individual pays for a gym membership instead of going to the movies An individual signs up for a credit card to begin building credit

Ntbk? Is your note book organized? All units organized with labeled dividers All notes are in the proper order & unit section All handouts are organized in their assigned unit

Objective 5.1: Describe the basic factors of production such as land, capital, labor and entrepreneurial skills and their impact on economic activities What is the difference between a need and a want? What would be the opportunity cost of buying a $300.00 iPhone?

“What Went Into This Candy Bar?” List everything that went into making this candy bar from the time someone had the idea for the candy until the consumer purchased the candy in the store

I. Factors of Production Resources used to make all goods and services Land- includes all natural resources Labor- is the effort that a person devotes to a task for which they are paid White collar workers- high skilled office work Blue collar workers- low skill manual labor

Capital- any human-made resource used to produce goods or services Physical capital- goods that include buildings and tools: Hammers, Pizza oven, Factory, computers. Human capital- knowledge and skills a worker gains through education and experience: Manager, Corporate Accountant, Pizza Chef, Professor etc..

D: Entrepreneurs- risk-takers who decide how to combine other factors of production to create new goods and services.

LETS LOOK AT OUR CANDY BAR Land Labor Capitol Entrepreneurship

Choices All Societies Face Unlimited wants Limited Resources Scarcity Choices All Societies Face What to produce How to Produce For Whom To Produce

In summary: Scarcity forces suppliers and consumers to choose among alternatives and to arrive at affordable decisions

II: Economic Systems The United States operates under a Free Enterprise Capitalism system. Under this system businesses compete for profit with a minimum of government interference. Question: How does a citizen’s level of education and training affect a country’s resources?

Price is determined by the consumer. “the customer is always right.” Consumer Sovereignty Price is determined by the consumer. “the customer is always right.”

I: Consumer Sovereignty Consumption: the act of consuming or the use of economic goods. Consumers: the people who buy and use goods and services. Consumer sovereignty: the power of consumers to decide what gets produced. Producers have to meet the demands of the consumers or….go out of business

II. Revenue & Costs Revenue –income a company receives Cost –value of money that has been used up to produce a good Marginal –value of one more item

D. Cost-benefit analysis: Economic decision making Choosing an action when benefits are greater than costs However, at some point cost may exceed benefit E. Marginal utility: the first unit of a consumed good is more useful than the next unit consumed Ex: A Starbucks Grande peppermint mocha @ $3.89

Any resources that are made by humans and used to create other goods and services are called: entrepreneur labor capital land

III. Revenue Total Revenue: number of units sold multiplied by the average price per unit 100 pizzas x $10.00 = $1000.00 Marginal Revenue: Total change in revenue that results from selling one more unit of output One more pizza sold = $10.00 $1000.00 + $10.00 = $1010.00 Marginal revenue= $10.00

IV. Marginal Cost $20/10 cars= $2 per car To predict the revenue that will come from the goods you produce, you must balance costs & benefits After figuring out production, you must figure out marginal cost- the price of producing one additional unit Ex: it takes $20 to produce 10 toy cars What is the marginal cost of producing one more car? $20/10 cars= $2 per car

Which of following terms refers to the extra or additional cost of producing one additional unit of output? Total cost Variable cost Fixed cost Marginal cost

The income from a full time job that you give up when you go to college is called: Trade-off Opportunity cost Marginal cost revenue

V. Marginal Benefits Benefits of each item produced usually goes down with each item produced Marginal benefit- additional benefit of each additional unit produced Ex: The first 10 toy cars sell for $30 the next 10 toy cars sell for an additional $15 20 toy cars sell for $45 After the first 10 toy cars, what is the marginal benefit of each toy car produced? First 10- $30/10= $3 Next 10- $15/10 =$1.50

Ex: A developer wants to build houses on 100 acres of land near a lake *Houses w/ a lake view cost the most *Value of the land decreases further away from the lake *Declining marginal benefit with each house built beyond a certain point

VI. Types of Costs fixed cost –expenses that are the same no matter how many units of a good are produced Mortgage payment/rent variable cost –costs that change with the number of items produced & increase as production grows Wages Raw materials Total costs –fixed costs + variable costs

The amount of money a business owner pays for rent or property taxes that does not change is called? Total cost Variable cost Fixed cost Marginal cost

Marginal benefit vs. Marginal cost

Warm Up Give an example of a fixed cost. Give an example of a variable cost.

Unit 5.3 Objective: To identify the costs of production and consumption of goods & services

I. Labor and Consumers Division of Labor- assigning small number of tasks to each worker to increase efficiency Specialization- workers focus on one activity only, allows them to work faster Consumption- consuming or use of economic goods

Why is division of labor profitable? It increases efficiency It increases spending on capital goods It reduces labor unrest It protects workers from losing their jobs

Consumer sovereignty power of consumers to decide what gets produced producers meet demands or go out of business

How do consumers affect the products a business produces? By writing letters to the manufacturer By buying or not buying the product By buying goods that are complementary to the product Consumers have no impact on what products are produced

II. Labor and Output Marginal Product of Labor- change in output from hiring one additional worker Increasing Marginal Returns- increase return for workers If there are three tasks in creating a product, MPL increases for each worker hired Specialization increases per worker hired

Diminishing Marginal Returns- decrease in return, if too many workers are added after first three workers (one for each task), benefits of specialization end adding more workers increases total output, but at a diminishing rate MPL decreases as number of workers increases

Law of diminishing returns: adding one more factor of production, while holding others constant, will yield lower per-unit returns Ex: At some point each additional worker will add less output than the worker added before. See the table on the next slide to illustrate this phenomena. Notice what happens to output as each new person is added to payroll. Is this sustainable and will the company make a profit?

Output (pizzas per hour) Marginal Product of Labor Number of workers Output (pizzas per hour) Marginal Product of Labor - 1 4 2 10 6 3 17 7 23 5 28 31 32 8 -1

Pizzeria Craziness Breakdown Pounds Pounds Market Item Supplied Demanded Status olives 20 30 Shortage flour 100 120 Shortage tomatoes 60 120 Shortage onions 40 60 Shortage cheese 50 50 Even sausage 40 40 Even ham 20 20 Even pepperoni 50 50 Even garlic 100 50 Surplus peppers 60 50 Surplus mushrooms 300 250 Surplus anchovies 750 600 Surplus