Sponge: Monday, August 22 Using your textbook, define scarcity. Give an example for each of the following: how individuals have to deal with scarcity and how countries have to deal with scarcity. Using your textbook, define opportunity cost. Give an example for each of the following: opportunity costs for an individual and opportunity costs for a country. In your own words, what do you think is the difference between a capital good and a consumer good?

Fundamentals of Economics: Specialization and Voluntary Exchange

Vocabulary Review Economics: A social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources Land: Natural resources or other “gifts of nature” not created by human effort Capital (or capital goods): Tools, equipment, and factories used in the production of goods and services Labor: People with all their efforts, abilities and skills Entrepreneur: Risk-taking individual in search of profits

Scarcity: Review Scarcity: fundamental economic problem of meeting people’s virtually unlimited wants with scarce resources Scarcity forces every society to answer the basic questions of WHAT to produce, HOW to produce, and FOR WHOM to produce

Scarcity: Review Scarcity Because of scarcity, society needs to decide how to distribute limited resources to satisfy seemingly unlimited wants and needs.

Trade-offs and Opportunity Costs: Review All economic decisions require us to make choices among alternatives. Trade-offs are all the available alternatives. The opportunity cost is the next-best alternative we give up.

Production Possibilities Frontier: Review

Opportunity Cost: Review

PPF: Review

PPF: Review Factors that can result in an expansion of the PPF of a country: Growth in population Increase in available capital Improvements in technology Increase in productivity

Economic Products: Vocabulary Economic products are goods or services that are useful, relatively scarce, and transferable. A good is a useful, tangible item. Capital goods are manufactured goods used to produce other goods and services. Consumer goods good intended for final use by consumers rather than businesses Durable good: A good that lasts for at least three years when used regularly Nondurable good: A good that wears out or lasts for fewer than three years when used regularly Service is work or labor performed for someone. Value: Monetary worth of a good or service as determined by the market

Today’s Standard 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.

Specialization Profits are the money that producers make after they have paid for all of their expenses (costs) Increasing productivity can help increase profits, and one way to increase productivity is to specialize Productivity is the ability to turn inputs into outputs in a certain amount of time

Specialization, Continued Specialization: The assignment of tasks to the workers, factories, regions, or nations that can perform them more efficiently; or the devotion of resources to a specific task Specialization occurs when factors of production perform only tasks they can do better or more efficiently than others With labor, workers are allowed to focus on one particular job

Division of Labor Division of Labor: A way of organizing work so that each individual worker completes a separate part of the work; the act of splitting up work into smaller and more specialized tasks Most of the time, a worker who performs a few tasks many times a day is likely to be more proficient and efficient than a worker who performs hundreds of different tasks in the same period More gets produced with better quality

Specialization + Division of Labor The division of labor makes specialization possible: The assembly of a product may be broken down into a number of separate tasks (the division of labor), then each worker can perform the specific task he or she does best (specialization). For example: Henry Ford used an assembly line to manufacture cars. In his factories, each worker added one part to a car instead of a few workers building an entire vehicle This division of labor and specialization cut the assembly time for one car from 1.5 days to just over 1.5 hours, plus it reduced the cost of a car by more than 50%

Specialization + Division of Labor TAG (Talk Amongst your Group): Come up with two examples of division of labor and specialization

Today’s Standard SSEF3 The student will explain how specialization and voluntary exchange between buyers and sellers increase the satisfaction of both parties. b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.

Voluntary Exchange Voluntary exchange exists when individuals and businesses freely choose to exchange goods, services, resources, etc. for something else of value (usually money) Unites States economy Little government intervention regarding what to produce or what to buy (except for things that are illegal) Consumers and producers make voluntary decisions

Voluntary Exchanges Voluntary exchanges benefit both the buyer and seller or they would not occur: Consumers find what they want at a price they are willing to pay and at which the producer is willing to sell the product

Benefits of Voluntary Exchanges Encourage increased productivity and efficiency Producers want to increase their profit, so they produce more output by increasing productivity Encourage technological inventions and innovations Inventions are new products (machines) that perform a task or fulfill a need that no previous product could perform or fulfill, or at least could not perform nearly as well, like computers Innovations are any invention or change in process that greatly improves something that already exists (e.g., a faster way to package frozen pizzas)