Do you think like an economist? Answer true or false to the following questions. 1. Because it is desirable, sunshine is scarce. 2. Because it is limited, polio (the disease) is scarce. 3. Because water covers ¾ of the earth’s surface and is renewable, it cannot be considered scarce. 4. The main cost of going to college is tuition, room and board. 1 – False – not limited – free good 2 – False – not desireable 3 – False – everything has a cost – implicit (opportunity) and price for clean water 4 – False – opportunity cost of lost earnings

SIX CLUES TO ECONOMIC UNDERSTANDING ECONOMIC MYSTERIES SIX CLUES TO ECONOMIC UNDERSTANDING 1. People Economize 2. All Choices Involve Cost 3. People Respond to Incentives 4. Economic Systems Influence Individual Choices and Incentives 5. People Gain from Voluntary Trade 6. The value of a good or service is affected by people’s choices.

Scarcity – the fundamental Economic Problem Imagine this situation: All day you have been thinking about making your favorite foods brownies and scrambled eggs when you return to your home.

Scarcity – the fundamental Economic Problem You look in the refrigerator and to your surprise there are only two eggs left. It takes two eggs to make brownies and two eggs to make scrambled eggs, so you can’t make both. You need to make a choice. What is your decision?

Scarcity Scarcity is the fundamental problem of economics: how to make decisions in a world of limited resources and unlimited desires. What is a resource? Resource: all things people can use to make goods, or products. What are some examples of resources? http://www.youtube.com/watch?v=yoVc_S_gd_0&feature=related

Scarcity, Continued Most resources are limited, or scarce. No matter how wealthy a person or nation is, there are never enough limited resources to provide everything that everyone wants. What resources are scarce? Can you think of some examples? Needs: essential for survival – water, food, shelter Wants: anything that makes life more comfortable Because of scarcity, people must choose how to use resources – Which do they take care of first – needs or wants?

Scarcity, Continued The reality of life is that we have limited resources (You can’t always get what you want) Because of scarcity we must make decisions on how to use the resources we have.

Opportunity Cost Because of scarcity, trade-off’s are inevitable Every time people make a choice about how to use their resources, they must make a trade-off. This means they gain something, but they also give up something. Costs are not always explicit or monetary. Opportunity Costs are implicit – the thing you give up by making a choice is called the opportunity cost of your decision.

Individuals, businesses, and nations face an opportunity cost every time they decide how to use their scarce productive resources. Producing one good means not producing other goods and services, so again, trade-off’s are inevitable. Economics is the study of how and why people make choices about the allocation, or distribution, of resources.

Opportunity Cost continued What are some recent decisions you have made? When you make a decision, you evaluate the benefits of each choice. The opportunity cost of making a decision like this is the value of the next best alternatives you could have chosen. It’s not always about money – could include time, aggravation, convenience or moral guilt. For example, if your favorite activity is playing video games, but you decide to do your homework instead, the opportunity cost of your decision is the amount of fun you could have had playing the game. The benefit of your choice is that you don’t have to worry about doing your homework later.

Rational Decision Rational decision will play a part when people make choices. When making a rational decision, you will weigh the benefits and costs of each option. Then we choose the option whose benefits (in our opinion) outweigh its cost. This kind of decision making is also called a cost-benefit analysis.

Warm Up: what is the opp. Cost of your decisions? Opportunity Cost You decide to play a sport after school instead of getting a part time job. You decide to go out to eat instead of to a movie You decide to go to a party instead of studying

Scarcity Limited Resources Choices What to Produce? How to For Whom Unlimited Wants Scarcity Limited Resources Choices What to Produce? How to For Whom To Produce? 3 Basic Economic Questions

Types of Productive Resources The things people need to make and sell products are called productive resources or factors of production. There are 4 important productive resources. 1. Land: Land resources include not only the land itself, but all the natural resources on the land, as well as any improvements people have made to the land. “gifts of nature” Examples: water, air, mineral deposits, forests, land

Types of Productive Resources 2.Labor: The process of making things requires labor, the mental and physical efforts of human workers. For example, running a business might require workers to operate machines, load boxes, drive trucks, answer telephones, write letters and track orders on a computer.

Types of Productive Resources 3.Capital: are human –made resources used to make other products or deliver services. Businesses need both physical capital and human capital. 4.Physical Capital: refers to all the tools, machines, and other equipment a business needs. For example: a restaurant needs stoves, refrigerators, pots and pans, tables and chairs.

Types of Productive Resources Human capital: refers to the skills and knowledge of a company’s workers. The value of the health, education, and skills of people

4. Entrepreneurship An entrepreneur is a person who starts and manages a business. They come up with ideas about how to produce something that they think people will want to buy. Organize all the land, labor and capital resources needed to produce the good or service. Risk Takers: invest money in a new business. Without entrepreneurship, no goods and services would ever be produced.

London 2012 Olympics What types of productive resources… Land Labor Capitol Human Physical …are being used in the London Olympics right now. Discuss in a small group and list examples for each resource in your notes.

Georgia Performance Standards SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments. a. Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources. d. Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.