What is Economics?

What is Economics? The study of how people seek to satisfy their needs and wants by making choices

Relationship between Economics and Scarcity

What is “Scarcity?”

What is Scarcity?” Economic situation where there are limited quantities of resources to meet unlimited wants and needs.

What is a “Shortage?”

What is a “Shortage?” Economic situation in which a good or service(quantity) supplied is less than the quantity demanded at a given price.

What are “needs?”

Things NECESSARY for survival What are ”needs?” Things NECESSARY for survival

What are “wants?”

Things we desire but are NOT ESSENTIAL to survival What are “wants?” Things we desire but are NOT ESSENTIAL to survival

What is the “Paradox of Value?”

What is the “Paradox of Value?” Apparent contradiction between the high value of a nonessential item and the low value of an essential item

Paradox of Value

Marginal Utility is the additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility.

What is “Opportunity Cost?”

What is “Opportunity Cost?” Cost of the next best alternative use of money, time, or resources when one choice is made rather than the other.

What is “Trade offs?”

What is “Trade offs?” Trade offs is defined as the alternative that you must give up when your choice is made over the other.

You will hear them a lot this semester! Factors of Production Remember these! You will hear them a lot this semester! Land Labor Capital Entrepreneurs

Land Natural resources (land, coal, water, forests, etc.)

Labor The effort people devote to a task for which they are paid

Capital Physical: Human made objects used to create other goods and services

Entrepreneurs (Risk Takers) Ambitious leaders who combine land, labor, and capital to create and market new goods and services. (Shark Tank)

Factors of Production

Process of Production

Production Possibilities Curves  A curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors.

Al's Coffee Shop! 50 Coffee 50 Tea

Al's Coffee Shop! Any production in this space is inefficient…you 50 Coffee Any production in this space is inefficient…you have the supplies but aren’t making the coffee or tea 50 Tea

Efficiency Efficiency means using resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently.

Al's Coffee Shop! Any production along this line is EFFICIENT Coffee 50 Any production along this line is EFFICIENT Coffee 50 Tea

Growth Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.”

Al's Coffee Shop! Al gets a loan from The bank and now 50 Al gets a loan from The bank and now He can make even More coffee or tea! Coffee 50 Tea