Scarcity and the Factors of Production Your favorite band is giving a concert, and you really want to go! You could buy a ticket or you could … Use the money to see five movies Use the money to buy the band’s new CD plus a pair of jeans Save the money for your vacation

What is Economics? Economics is the study of how people satisfy wants with scarce resources. Which CD to buy? How many hours to study? Which movie to see? How many employees to hire?

Needs - things that are necessary for survival Wants - things that we would like that are not essential to survival Example: I need water, but I want a soda.

Scarcity and Shortage Scarcity occurs when there are limited quantities of resources to meet unlimited needs or desires Shortages occur when producers will not or cannot offer goods or services at current prices

Goods - items that are economically useful or satisfy an economic want Goods - items that are economically useful or satisfy an economic want. They can be classified as consumer/capital and durable/non-durable. Services - actions or activities that someone does for another.

Value is expressed in money; scarcity is not enough to create value Utility is a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person Wealth is the accumulation of goods that are tangible, scarce, useful, and transferable to another person

Factors of Production Resources necessary to produce what people want or need.

Factors of Production LAND - limited natural resources to produce goods and services LABOR - workers who apply their efforts, skills, and abilities to production CAPITAL - any human-made resource that is used to produce other goods and services

Factors of Production Goods and Services Entrepreneur - assembles the factors of production to create new goods and services

Give at least one example of the factors of production for a bakery making chocolate chip cookies. Land-- Labor-- Capital-- Entrepreneur--

Answer the following questions 1. Which factor of production is represented by each of the following? A. An office building B. An assembly line worker C. A tree used to make paper D. Unused soil E. An artist F. A student’s college degree

2. What role do entrepreneurs play in producing goods and services?

Opportunity Cost and Production Possibilities Curve What are 5 vacation destinations that are appealing to you? You can choose just one. What do you give up by choosing that vacation over others?

Trade-offs and Opportunity Cost Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. The most desirable alternative given up as a result of a decision is known as opportunity cost. All individuals and groups of people make decisions that involve trade-offs.

The Decision-Making Grid Economists encourage us to consider the benefits and costs of our decisions. A society may have to choose to make more “guns or butter”. If it chooses to make more of the one, the trade off is to make less of the other. Decision making grid Alternatives Cost under $50 Durable Will parents approve? Use anytime? IPOD NO Yes Yes Yes Video game Yes Yes No Yes Jeans Yes Yes Yes Yes Concert tix No No No No

Thinking at the Margin When you decide how much more or less to do, you are thinking at the margin. Options 1st hour of extra study time 2nd hour of extra study time 3rd hour of extra study time Benefit Grade of C on test Grade of B on test Grade of B+ on test Opportunity Cost 1 hour of sleep 2 hours of sleep 3 hours of sleep

Production Possibilities A production possibilities graph shows alternative ways that an economy can use its resources. The production possibilities frontier is the line that shows the maximum possible output for that economy. When an economy is fully employed, it is operating along the frontier and is EFFICIENT.

Production Possibilities Idle Resources-- If some resources are not operating, it is impossible to reach potential. Point on graph moves inside the frontier

Production Possibilities Economic growth-- frontier moves outward as more resources or productivity is reached. New frontier is created. Population may grow or capital may increase

Production Possibilities Think of two products that your company produces Create a production possibilities schedule with 4 possibilities Graph the production possibilities Label the 4 points (A,B,C,D) Identify what your opportunity cost is at each point