Economics: An Introduction.

What is Economics? The study of CHOICES… And the study of how individuals and nations use scarce resources to satisfy their needs and wants.

Why is This Class Necessary? This is Warren Sapp. He made over $60 million during his career… He owed child support to five different women… Owned 240 pairs of Air Jordans… Had run up $6.7 million in debt… And had $1,165,35 in his checking account… When he declared bankruptcy in 2011. Your future prosperity does not depend on your INCOME. It depends on your ability to make GOOD DECISIONS. That is the point of this class.

There is No Such Thing as a Free Lunch Resources are limited, but human wants and needs are UNLIMITED… This is called SCARCITY… Scarcity ALWAYS exists. Because of scarcity, EVERYTHING you do has a cost… Even if that action seems to be “free”… What might be a “cost” of taking a walk in the park?

Opportunity Cost What trade-off is being made in this picture? Because of scarcity, everybody is forced to make trade-offs…The sacrifice of one thing in order to have another. The cost of the trade-off is called the opportunity cost—The value of the SECOND BEST option you did not take. This Sunday you might choose between…church, sleep, visiting family, doing homework, working… You narrow it down to visiting your grandmother and SLEEP… And you go back to sleep. What was your opportunity cost? Visiting your grandmother. Was that a good choice? Maybe…maybe not. Opportunity Cost What trade-off is being made in this picture?

You have enough money to buy either a Playstation 4 or an Xbox One You have enough money to buy either a Playstation 4 or an Xbox One. You Choose the PS4. What is the opportunity cost? PS4 X Box One

Why Are You Here? You could be working RIGHT NOW!!! But right now, you are making NO MONEY AT ALL!!! Minimum wage is now $7.25…but you might even get a job—RIGHT NOW—for more than that!!! Let’s say, $10 an hour… $10 an hour, 8 hours per day, $80 bucks a day, $400 bucks a week… This semester lasts for 18 weeks… What is your opportunity cost for choosing to stay in school?

$7,200

But Wait! High school dropouts earn, on average, $910,000 in their lifetime… Graduates earn $1.2 million… So, the opportunity cost of dropping out is $290,000. And those with four-year degrees earn $2.1 million… So the opportunity cost of not going to college is $900,000. Those with master’s degrees earn $2.5 million… And those with professional degrees earn $4.4 million.

Production Possibilities Curves Any point inside of the curve represents inefficiency (you have resources left over). Any point outside of the curve represents an impossibility (unattainable). PPCs show us that resources are scarce and there is always an opportunity cost.

Production Possibilities Curves

Factors of Production or Productive Resources Factors of Production—the resources that are used to make all goods and services. There are three: Land—natural resources used to produce goods and services (coal, water, lumber)… Labor—the effort a person devotes to a task…(human resource). Capital—any human made resource that is used to produce other goods and services. There are two types of capital: …Physical Capital, and… …Human Capital.

Types of Capital Physical Capital—Human-made objects that are used to create other goods and services… Such as—tools, factories…what else? Human Capital (human resource)—the knowledge and skills a worker gains through education and experience. The economy must have both types of capital to grow.

Putting the Factors Together: Entrepreneurs—ambitious leaders who combine land, labor and capital to create and market new goods and services. They develop new ideas, start businesses, create new industries and are critical for economic growth to occur.

Motivations of Entrepreneurs Profit Motive: Make Money Provide Jobs Innovation: Inventing new items that make life easier. Improve Society