Unit 1 Fundamental Concepts SSEF1, SSEF2, SSEF3, SSEF4, SSEF5, SSEF6 Economics Unit 1 Fundamental Concepts SSEF1, SSEF2, SSEF3, SSEF4, SSEF5, SSEF6

SSEF1 SSEF1:The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments. a. Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources. b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship). c. List a variety of strategies for allocating scarce resources. d. Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

Vocab Scarcity: Limited economic resources with unlimited wants. Land: Property, Natural resources. Capital: Goods used to produce a product. Allocate: Distribute resources to satisfy the greatest number of needs. Opportunity Cost: Value of the next best alternative given up. Trade Off: Occurs when one good is sacrificed for another. Labor: Work being done. Entrepreneurship: Develops a new combination of the other factors of production, creating something of value.

Economics A social science studying the allocation of resources and goods.

Scarcity Why is scarcity the driving force of economics? Scarcity = a basic condition that exists when unlimited wants exceeds limited productive resources. “Individuals have wants that are unlimited. But the total resources of society, including natural resources, human resources, capital goods and entrepreneurship, are limited, so scarcity exists. As a result, it isn't possible for everyone to have everything he or she wants. No society has ever had enough resources to produce the full amount and variety of goods and services its members wanted. In a world of scarcity, producing any one good or service means that other goods and services cannot be produced, and trade-offs are inevitable.”-CEE

SCARCITY UNLIMITED LIMITED WANTS RESOURCES SCARCITY CHOICES 1. WHAT TO PRODUCE 2. HOW TO PRODUCE 3. FOR WHOM TO PRODUCE

3 Factors to make a good Scarce 1. Limited Quantity 2. Desirable 3. More than 1 use. VE4 video: http://www.econedlink.org/interactives/index.php?iid=194&type=student Alaska

Scarcity How does Scarcity impact economic decision making? Why does Scarcity result in Opportunity Cost and Trade-Offs? Resources and Scarcity: What’s Economics all about?

Four Factors of Production 1. LAND 2. CAPITAL 3. LABOR 4. ENTREPRENEURS

Four Factors of Production Land: -All natural resources that are used to produce goods & services. Ex: water, sun, plants, oil, trees, animals. Capital: -Any human made resource that is used to create other goods & services. Ex: oven, tractors. *Human Capital: skills or knowledge gained through experiences. Ex: college degree. Labor: -Any effort a person devotes to a task for which that person is paid. Ex. Teachers, Waiters,Lawns Entrepreneurs: -Leaders that combine all 3 factors to create a good or service. Ex. Bill Gates, Jay Z *risk takers. 4 Factors

4 Factors of Production Worksheet! Front Side: Pick 1 product---Fill in the 4 boxes Back Side: Pizza Activity – 23 Factors, Find and List them!

4 Factors of Production Activity Land -List and Illustrate Labor Capital Entrepreneur Product

Four Factors of Production Your Turn: Four sections of your paper. Pick Any product: List the factors of production for your product! Draw an illustration for each factor!

Opportunity Cost The value of the next best alternative that could have been chosen but was not chosen. What you give up when you make a choice. Something you give up to gain something else. Trade-off- When one good is sacrificed for another. Opportunity cost is what you must give up to obtain something else, the second-best alternative. However, what you must give up to obtain, say, a bicycle is not really money--it is whatever other good or service you would have spent the money on as your next-favorite choice. Complete 10 Scenarios for YOU with Opportunity Cost!

SSEF2 SSEF2: The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action. a. Illustrate by means of a production possibilities curve the trade offs between two options. b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

Vocab Marginal Benefits: The additional gain from consuming or producing one ore unit of a good or service; can be measured in dollars or satisfaction. Marginal Cost: The increase in a producer’s total cost when it increases its output by one unit. *Cost-Benefit Analysis: An analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the cost.

Marginal Cost/Benefits Decisions are almost always made on the basis of marginal cost and benefits. PACED model. Decision making process: 1. Define the Problem/Define Rational 2. List the Alternatives. 3. State the Criteria 4. Evaluate the alternatives. 5. Make the Decision. **MAKE SURE WHEN YOU ARE MAKING A DECESION THAT YOUR BENEFITS OUTWEIGHT YOUR COSTS!

PACED Model P: What is the PROBLEM? A: What are the ALTERNATIVES? What options are available to you? C: What are the CRITERIA important to the decision? What goals do you want accomplished? Characteristics? Which ones are important E: EVALUATE each alternative. Take each one and give it a plus (+) or minus (-). D: Make a DECISION! Which alternative meets your standards? What do you gain? What did you give up?

Now it’s YOUR turn. Scarce Resource: 1. Free Homework Pass 2. Sucker 3. 5 Points towards your first quiz. Use the PACED Model to make a final Decision. http://www.econedlink.org/interactives/index.php?iid=184

Production Possibilities Curve Trying to see where the best point to produce your good or service is at. Guns: Capital Butter: Consumer 2 assumptions: 1. Amount of resources and technology remains the same. 2. Maximizing efficiency. GUNS BUTTER

PPC A: Inefficient-you don’t have enough resources. E: Unattainable because you don’t have enough resources. This is your goal. PPC shows Scarcity, Opportunity Cost, and Allocation of Goods. Also shows economic growth. Shifts to the Right=Increase Shifts to the Left=Decrease

Production Possibilities Curve If the Nation is currently producing at B, How could they get to D? Invest in Technology. Invest in more capital. Productive resources. Change in Trade D a b c

PPC What would cause: A to B: increase in technology, human capital, more workers. C to A: Decline in economy, Unemployment rises. A: Not enough resources. B. Most Efficient. Full Capacity. C. too much. Low demand for product. Over capacity. C B A

Opportunity Cost with PPC What if they increased production of Guns from 6 to 15, what is the opp cost of butter? 20 quarts of Butter were given up to produce the desired 15 guns.

Production Possibilities Curve Now It’s Your Turn Practice with PPC!

SSEF3 SSEF3: The student will explain how specialization and voluntary exchange between buyers and sellers increase the satisfaction of both parties. a. Give examples of how individuals and businesses specialize. b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.

Specialization Assignment of tasks so that each worker performs fewer functions more frequently. Not limited to a single factor of production. Industrial or Regional specialization occurs. Industrial-Assembly line- Car parts-doors, engines. Regional- Farming, Produce. Idaho-Potatoes, Iowa-Corn, Texas- Oil, Cattle Helps reduce time and cost of the product. http://www.econedlink.org/interactives/index.php?iid=185

Voluntary Exchange The act of buyers and sellers freely and willingly engaging in market transactions. The transaction benefits both the buyer and seller, or it would not have taken place. Non-fraudulent. Buyers Choices on Money: Deposit into Bank, keep it, exchange it for goods or services. Sellers Choices on Money: Exchange goods for cash, must feel money is more valuable than the good. http://www.econedlink.org/interactives/index.php?iid=196

SSEF4 SSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce. a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation. b. Evaluate how well each type of system answers the three economic questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability.

Vocab Market Economy Command Economy Mixed Market Economy Profit Motive Consumer Sovereignty Broad Goals of Economic Systems http://www.econedlink.org/interactives/index.php?iid=186 http://www.econedlink.org/interactives/index.php?iid=187

Market Economy Market Economy- Economic system in which supply, demand, and the price system help people make decisions and allocate resources; same as free enterprise economy. What, How, Whom questions. WRITE: Producers and Consumers make all economic decisions!

Market Economy Advantages Disadvantages: 1. Variety of goods and services. 2. Able to adjust to change gradually. 3. Individual freedom for everyone. 4.Consumer Sovereignty Disadvantages: 1. Lots of failures. 2. Not everyone's needs are met. 3. Rewards only productive resources; does not provide for people too young, too old, or too sick to work. 4. Does not produce enough public goods such as defense, universal education, or health care.

Market Economy Examples: 1. Canada 2. France

Command Economy Economic system characterized by a central authority that makes most of the major economic decisions. WRITE: The government makes all economic decisions.

Command Economy Advantages: Disadvantages 1. Stable 2. Efficient 3. Basic needs of citizens are met. Disadvantages 1. No growth 2. Few options for consumers 3. Does not care about the citizens of their nation.

Command Economy Examples: 1. Cuba 2. North Korea

Mixed Economy People carry on their economic affairs freely, but are subject to some government intervention and regulation. WRITE: Producers and Consumers (with the help of government) make all economic decisions.

Mixed Economy Advantages: 2. Competition. Disadvantages: 1. Unstable 1. Limited Government. 2. Competition. Disadvantages: 1. Unstable 2. High Unemployment (recessions)

Mixed Economy Example: 1. U.S.A

Major Economic Concepts Private Ownership: individuals and private businesses, not the government, own most land and capital goods. The right to own private property provides incentives to owners to take care of the property and to invest in and therefore encourages the efficient allocation of resources and economic growth. Profit Motive: goal of entrepreneur is to create the greatest profit when compared with costs.

Major Economic Concepts Self Interest: drive people to get the best job they can, to get the most for their money and to earn the most profit in their business Consumer Sovereignty: (POWER!) – consumers/buyers hold ultimate decisions making power over market transactions – right to decide – influences market Competition: keeps prices in line with the costs of production. Competition among buyers and sellers prevents any one buyer or seller from controlling the market prices.

Major Economic Concepts Government Regulation: define and enforce property rights and to provide some goods and services such as national defense that are not provided efficiently by markets. Consumer protection Public Goods: goods provided by the government for the use of the general public paid for by tax dollars. Private industry would not supply/ produce them otherwise and to help compensate for free-loaders/free-riders

6 Economic Social Goals Economic Efficiency Economic Equity Economic Freedom Economic Growth Economic Security Economic Stability

Economic Efficiency Command Market Resource allocations established by central planners. State-owned businesses are often inefficient but rarely allowed to fail. Most allocation decisions made by consumers and producers in markets. Extensive specialization and international trade increase productivity and competition.

Economic Equity Market Command Wages often set by government to provide greater equality of income. Opportunities for moving or changing jobs are limited, so jobs may not make use of individual skills and abilities. Equality of opportunity, people are free to make own decisions on how to use their resources and capabilities but no guarantee of success. Income depends on the value of labor and other resources an individual has to sell.

Economic Freedom Market Command Government ownership of most capital and land resources. Many decisions made by central planners. Private ownership of all kinds of resources is allowed, and individual freedom and control of resources is highly valued.

Economic Growth Command market Growth targets set by central planners who assign output quotas for different firms. Weak incentives to reduce waste. Plant facilities and equipment maintenance often a problem. Incentives for individuals and businesses to produce more and avoid waste encouraged efficient use of resources. Specialization, investment in capital and workers’ education and training, and trade encourage higher levels of output.

Economic Security market Command Pensions, jobs, income, housing, and health care provided or guaranteed by the government. Generally, individuals are responsible for their own health care, retirement, benefits, housing, and income.

Economic Stability market command No unemployment, prices usually set below market price to ensure that goods are sold, which controls official measures of inflation. Some unemployment is tolerated, income depends on the resources an individual has to sell, the fed govt uses monetary and fiscal policies to reduce unemployment and inflation and encourage economic growth.

SSEF5 SSEF5 The student will describe the roles of government in a market economy. a. Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures. http://www.econedlink.org/interactives/index.php?iid=193 b. Give examples of government regulation and deregulation and their effects on consumers and producers.

Government Regulation A Governments Rules and Restrictions on Economic activity. The Government Provides goods and services to citizens. EX: National Defense, Public Parks, Schools It also redistributes income. EX: Welfare, Social Security, and Disability.

Government Regulation The government tries to regulate the economy by: Tariffs Subsidies (free money to businesses) Environmental regulation (EPA) Workplace safety Consumer protection laws-Car Safety Regulations Protecting property laws.

Government Regulation The Government can also DEREGULATE (take away a regulation. This is very hard to do once a regulation has been put in place. ****STOSSEL CLIPS: Lemonade stand and food police.

SSEF6 SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people. http://www.econedlink.org/interactives/index.php?iid=195 a. Define productivity as the relationship of inputs to outputs. b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth. c. Give examples of how investment in education can lead to a higher standard of living.

How do we measure Productivity? Productivity- Relationship of input to output. 1. Division of Labor: Dividing task. Specialization, Assembly Line. 2. Investment in Capital Goods. 3. Investment in Human Capital: Hire more, training or educating workers. 4. Incentive: Anything that encourages you to behave in a certain way. *All of these improve productivity, so prices decrease and we get more! http://www.econedlink.org/interactives/index.php?iid=192

Productivity Specialization and Division of Labor usually increase the productivity of workers. Workers can improve their own productivity by improving their human capital- Education/Train. Workers can improve their productivity by using physical capital such as tools and machinery. Standards of Living increase as the productivity of labor improves. Prices fall, but get more goods! Productivity is measured by dividing output (goods and services) Economic Growth is a sustained rise in a nations production of goods and services.

Create Your Own Business! Separate piece of paper: Answer the following questions for YOUR business. 1. Division of Labor: Dividing task. Specialization, Assembly Line. 2. Investment in Capital Goods. 3. Investment in Human Capital: Hire more, training or educating workers. 4. Incentive: Anything that encourages you to behave in a certain way.