Unit 1: What is Economics? Learning Objectives: Describe the nature of human wants and how they are satisfied. Identify and define the four factors of production. Define the meanings of scarcity and opportunity cost. Describe the major goal of business. Identify the basic economic decisions facing all societies. Describe the two branches of economics.

What is Economics? ◦Social science that studies how people decide to use scarce resources to satisfy their wants.

?What do I want? First ASK YOURSELF…

Lets draw it out…

Factors of Production Land Labor Capitol Entrepreneurship

Land Resources

Land Factors of Production

Labor Resources

LandLabor Factors of Production

Capitol Resources

LandLabor Capital Factors of Production

Then ASK YOURSELF… What good are all those resources if no one decides to utilize them? What do economists call the people who utilize resources?

Then ASK YOURSELF… Scarcity: A situation in which an inequality exists between wants and the resources available to satisfy them. ?What does scarce mean?

With a partner… Is a high-scoring basketball player a scarce resource? Is a talented movie star who is not popular a scarce resource? Is water a scarce resource? Is oil a scarce resource? If yes, were water and oil always scarce resources?

So what does it all mean? Two things! 1. Resources are scarce! 2. Society has unlimited needs and wants! Economics decides the “best” way of providing one to the other

Making Economic Decisions Trade-offs – alternatives that we must give up when we make a choice ◦Example – “I could stay up for 3 hours playing Halo, study, or sleep.”

Making Economic Decisions The most desirable of the options you pass up is called the Opportunity Cost Halo, study or sleep?

Making Economic Decisions What other option do you have other than using 3 hours for one task? You could split your time among multiple activities! Thinking at the Margin – decision involving adding one unit and subtracting one unit, rather than all or nothing

Making Economic Decisions There is a point at which you are paying the same increase in cost, but seeing lower benefits You must make the decision as to whether the cost is worth it This same process is used by businesses and consumers to make decisions

GRAPHS…. WHY do graphs sometimes show information more clearly than text or tables? Section 1.3 – Production Possibilities Curves

Production Possibilities - shows alternatives to what an economy can produce

Production Possibilities

To move from one point to another, the economy must make trade-offs

Production Possibilities Any point along the line shows the economy operating at maximum efficiency Any point below the line is underutilization – they are not getting all that they could Any point above the line is presently impossible, until new resources are available

Production Possibilities Why does the graph curve instead of making a straight line? ◦Law of Increasing Costs – as production increases for one item, more and more resources are necessary to increase production of the second item! The OPPORTUNITY COST increases…

quiz time quiz time Number your paper 1 – 4 1. A production possibilities curve shows the relationship between the production of: ◦a. farm goods and factory goods ◦b. two types of farm goods ◦c. two types of factory goods ◦d. any two categories of goods

answer d. any two categories of goods.

next … 2. The line on a production possibilities curve showing the relative amounts of two types of goods produced using all resources is called the ◦a. production possibilities frontier ◦b. opportunity cost line ◦c. utilization of resources ◦d. maximum possible production line

answer … a. production possibilities frontier

question … 3. The law of increasing costs means that as production shifts from one item to another, ◦a. the cost of production gets cheaper and cheaper. ◦b. the cost of producing an item stays the same no matter how many are produced. ◦c. more and more resources are necessary to increase production of the second item ◦d. the land costs of increasing production rise much more steeply than do the labor costs

answer is … c. more and more resources are necessary to increase production of the second item

and last question … 4. The curve usually seen in a production possibilities frontier can be explained by: ◦a. growth in the economy ◦b. underutilization of resources ◦c. increasing an economy’s efficiency ◦d. the law of increasing costs

final answer is … d. the law of increasing costs!