Basic Economics

ECONOMICS - “science of scarcity” -the study of the choices people make in an effort to Satisfy their unlimited needs and wants from limited resources. The science of “Scarcity”

Dealing With Scarcity - When There Is Not Enough For Everyone - Someone Suffers

SCARCITY What does Scarcity mean? A situation in which human wants are greater than the capacity of available resources to provide for those wants. A situation in which a resource has more than one valuable use What is the difference between SCARCITY and SHORTAGE?

Luxuries V. NECESSITIES Gump Household Food Clothing Shelter

SCARCE OR NOT Old economics textbooks with a sign that says “free books, take as many as you want.” The books have been three years.

One economics textbook and five students who want to study for test. SCARCE OR NOT One economics textbook and five students who want to study for test.

SCARCE OR NOT Petroleum in Japan, a country without its own oil fields and without oil reserves.

SCARCE OR NOT Petroleum in Saudi Arabia, a country with many oil fields and oil reserves.

SCARCE OR NOT Pebbles are taken from a beach to build a walkway in a homeowner’s lawn. No one else wants the pebbles. The pebbles are not necessary for the lake’s ecosystem or animal habitat.

1 . Economics – the study of the choices people make in an effort to satisfy their unlimited needs & wants from limited (scarce) resources. Good is a physical object (tangible) that can be purchased. [These can be seen and felt – car, book] Product Service is useful labor done for a fee (intangible). [These are activities, not items – lawyer or doctor ] 2 Econ Consumer Supplier 3 Producers (suppliers) – people who make goods/svcs. Consumers – people who buy and use goods/services. 4

Mechanic giving car a tune-up Good or Service? Mechanic giving car a tune-up Good Service

Good or Service? Watch Good Service

Good or Service? Watch Repair Good Service

Good or Service? Hamburger Good Service

Right

Wrong!

Good or Service? Basketball Good Service

Right

Wrong!

Good or Service? Bicycle Good Service

Right

Wrong!

Good or Service? Hair Cut Good Service

Right

Wrong!

Good or Service? Waste Management Garbage Pickup Good Service

Right

Wrong!

Good or Service? Laptop Computer Good Service

Right

Wrong!

Scarcity Problem Limited Resources Food, clothing, shelter, Mercedes, mansion, PS4, jewelry, iPod, projector, digital camera, good health, children, camcorder, laptop warmth, indoor plumbing, a sense of personal worth, 3D TV, literacy, higher economics grade, iPhone 6, FitBit Land, Labor, Capital, Entrepreneur Rent, Wages, Interest, Profits Unlimited Human Wants Limited Resources “Need” those first three to survive.

FACTOR OF PRODUCTION Resources used to make all goods and services. What would you need to make goods or supply services? CELL Capital Entrepreneurs Land Labor

The Four Factors of Production 9 . 1. Land [natural resources] – Nature’s items A. In the earth - coal, oil, fossil fuels, etc. B. On the earth – vegetation and water C. In the atmosphere – sun, wind, and rain Land is the starting point of all production.” Water Wind “Gifts of Nature” Sun Fossil fuels

*Most important resource – 70% of input cost 2. Labor [human resources] {“effort”} anyone who works [“paid work”] [Labor is the “brain-power” and “muscle-power” of human beings] A. Physical – pro athletes & lumberjacks B. Intellectual – ministers, doctors & lawyers 10 . *Most important resource – 70% of input cost “Hired Help”

Can’t produce anything Real Capital v. Financial Capital . REAL CAPITAL [tools, machinery, & factories] Can produce something directly with these FINANCIAL CAPITAL [stocks, bonds, and money] Can’t produce anything directly with these

Rent Wages Interest Profits Land Labor Capital Entrepreneur . Entrepreneurship – starting a new business or introducing a new product.

TRADE OFFS You can pick one of five places for a vacation Hawaii Italy Las Vegas Paris Japan Why did you choose the one place over the others? This is a trade off

OPPORTUNITY COST What does opportunity cost mean? Use the decision making grid below Sleep Late Wake up early to study Benefits Opportunity Cost Benefits Forgone

PACED Activity P What is the Problem? A What are the Alternatives? C What are the criteria? E Evaluate the alternatives. D Make a decision

P- What is the Problem. Who should get 5 extra points on the first P- What is the Problem? Who should get 5 extra points on the first test?

You have 10 minutes (click to start countdown) A- What are the Alternatives? Come up with 5 ways to make this choice (ex. Rock, Paper, Scissors) You have 10 minutes (click to start countdown)

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You have 10 minutes (click to start countdown) C- What are the criteria? Come up with 5 ways that you can judge your choices (ex. Is it fair) You have 10 minutes (click to start countdown)

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You have 5 minutes (click to start countdown) E- Evaluate the alternatives. If the Alternative is fair give it a plus, if not give it a minus Fair Rock, Paper Scissors + You have 5 minutes (click to start countdown)

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D Make a decision Total across Fair Rock, Paper Scissors + _ 2 You have 3 minutes (Click to start countdown)

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Which Did Your Group Choose?

WATER Demonstration

DECISION MAKING AT THE MARGIN You give yourself more options to calculate how to get a little of both choices with the best overall benefits. Decision making at the Margin Grid Options Benefit Opportunity Cost 1hour of study time 2hour of study time 3 hour of study time

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. Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 Production Possibilities Graph a (0,15) 15 8 14 b (8,14) 14 18 20 21 12 9 5 A production possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) 1 2 Chapter 1, Section 3

Shoes (millions of pairs) Watermelons (millions of tons) 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. Shoes (millions of pairs) 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S g (5,8) A point of underutilization 1 2 Chapter 1, Section 3

Shoes (millions of pairs) Watermelons (millions of tons) 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.” Shoes (millions of pairs) 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph T Future production Possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S 1 2 Chapter 1, Section 3

Watermelons (millions of tons) Shoes (millions of pairs) Cost Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 Production Possibilities Graph 14 18 21 12 9 8 c (14,12) d (18,9) Cost A production possibilities graph shows the cost of producing more of one item. To move from point c to point d on this graph has a cost of 3 million pairs of shoes. 1 2 Chapter 1, Section 3

Opportunity Cost of Doing Your Best In School Cheerleaders doing flips Better Job Better chance in college Better chance at the best colleges Always get a prom date or 2 Beautiful Spouse Cheerleaders doing flips to get your attention Better chance to be the boss And – They ask you! Learn Responsibility Fewer problems at home Better Self-esteem You always do your homework Report Card A Econ A English A Calculus A Journalism C Sex Ed

[of NOT doing your best in school] Opportunity Cost [of NOT doing your best in school] Worse Job “Paper or Plastic?” “Do You want fries with that?”

But You Could Have Had This Job!!

Production Possibilities A E More or better resources or better technology B Capital Goods D C Consumption Goods 1. At what letter is there unemployment [recession]? 2. What letters represent resources being used in their most productive manner? [full employment, full production, and best available technology] 3. What letter represents an improvement in technology, therefore a new PPC frontier line? 4. At what letter would there be the most economic growth in the future if a country were producing there now? What is the opportunity cost when moving from “C” to “A”; when moving from B to C; and do we have to give anything up when moving from D to B? D A, B, or C E A Consumption Capital no

The End