Welcome!

Happy New Year!!! This is a time of new beginnings with so many exciting things to do and learn. So Welcome to Economics class! I am looking forward to a happy and productive semester. This is a time of new beginnings with so many exciting things to do and learn. So Welcome to Economics class! I am looking forward to a happy and productive semester. I will be following the policies and procedures Mountain View has established. I will be following the policies and procedures Mountain View has established.

The Course at a Glance The five units we will be covering include: The five units we will be covering include: Unit 1 – Foundations of Economics, Trade, and Systems Unit 1 – Foundations of Economics, Trade, and Systems Unit 2 – Microeconomics Unit 2 – Microeconomics Unit 3 – Money and Monetary Policy Unit 3 – Money and Monetary Policy Unit 4 – Measurement and Fiscal Unit 4 – Measurement and Fiscal Unit 5 – Personal Finance and Investing Unit 5 – Personal Finance and Investing

Unit 1: Foundations of Economics

What is Economics? A science that deals with the allocation, or use, of scarce resources for the purpose of fulfilling societys needs and wants. – Addison-Wesley A science that deals with the allocation, or use, of scarce resources for the purpose of fulfilling societys needs and wants. – Addison-Wesley The study of how people seek to satisfy their needs and wants by making choices. The study of how people seek to satisfy their needs and wants by making choices.

What is Economics? The big two concepts are that: The big two concepts are that: Resources are scarce! Resources are scarce! Society has unlimited needs and wants! Society has unlimited needs and wants! Economics decides the best way of providing one to the other

Scarcity Definition: Definition: A situation in which the amount of something actually available would not be sufficient to satisfy the desire for it, if it were provided free of charge. A situation in which the amount of something actually available would not be sufficient to satisfy the desire for it, if it were provided free of charge.

Scarcity vs. Shortage Scarcity and shortage are NOT the same! Scarcity and shortage are NOT the same! Scarcity implies limited quantities of resources to meet unlimited wants. Scarcity implies limited quantities of resources to meet unlimited wants. Shortages occur when producers will not or cannot offer goods or services at the current prices. Shortages occur when producers will not or cannot offer goods or services at the current prices.

But this is America! Cant we have whatever we want?

Imagine… I know you are so excited to be here! I know you are so excited to be here! Write 5 things you would rather be doing this hour. Write 5 things you would rather be doing this hour. Put a star by the one you would pick first. Put a star by the one you would pick first. This one choice is your opportunity cost for being here. This one choice is your opportunity cost for being here.

Opportunity Costs vs. Trade Offs Opportunity cost is the most desirable alternative given up as the result of a decision. Opportunity cost is the most desirable alternative given up as the result of a decision. This is the second best choice (the best choice is your being here) This is the second best choice (the best choice is your being here) Trade-Offs are all the alternatives given up as the result of a decision. Trade-Offs are all the alternatives given up as the result of a decision.

Scarcity Economists say that all goods and services are scarce because the factors of production are scarce. Economists say that all goods and services are scarce because the factors of production are scarce. What are the factors of production??? What are the factors of production???

Factors of Production There are 4 factors that must all be used to produce anything: 1. Natural Resources (also referred to as land)

Factors of Production There are 4 factors that must all be used to produce anything: 2. Labor – effort of a person for which they are paid

Factors of Production There are 4 factors that must all be used to produce anything: 3. Capital – human-made resources used to create other goods

Factors of Production 3 Kinds of Capital Physical Capital – Also called Capital Goods, objects that are used to produce other goods

Factors of Production 3 Kinds of Capital Human Capital – knowledge or skills workers get from education and experience

Factors of Production 3 Kinds of Capital Financial Capital – money needed to begin production of a good or service

Factors of Production There are 4 factors that must all be used to produce anything 4. Entrepreneurship – person who takes a risk in combining the other 3 factors to create a new good

Making Economic Decisions Every decision we make involves trade-offs – alternatives that we must give up when we make a choice Every decision we make involves 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. Example – I could stay up for 3 hours playing Halo, study, or sleep.

But… Does it have to be all or nothing?

Thinking at the Margin Definition: Definition: Deciding whether to do or use ONE ADDITIONAL unit of some resource. Deciding whether to do or use ONE ADDITIONAL unit of some resource. Examples: Examples: Every bite of a meal is a choice for someone who is dieting. Every bite of a meal is a choice for someone who is dieting. Smoking will cause cancer! Smoking will cause cancer! Studying for a better grade. Studying for a better grade.

Making Economic Decisions The most desirable of the options you pass up is called the Opportunity Cost The most desirable of the options you pass up is called the Opportunity Cost Rank sleep, studying, and playing video games 1 st, 2 nd, and 3 rd on a list for what you value the most

Making Economic Decisions 1 st Place is what you would choose to do 1 st Place is what you would choose to do 2 nd Place is your opportunity cost (you give it up to do option 1) 2 nd Place is your opportunity cost (you give it up to do option 1)

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

Making Economic Decisions OptionsBenefit Opportunity Cost 0 hours studying, 3 hours sleeping F on Test None 1 hours studying, 2 hours sleeping C on Test 1 hour of sleep 2 hours studying, 1 hour sleeping B on Test 2 hours of sleep 3 hours studying B+ on Test 3 hours of sleep

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

Production Possibilities Production Possibilities Graph – shows alternatives to what an economy can produce Production Possibilities Graph – shows alternatives to what an economy can produce Lets say we can produce 2 things: Guns and Butter Lets say we can produce 2 things: Guns and Butter

Production Possibilities

Production Possibilities Graph – shows alternatives to what an economy can produce Production Possibilities Graph – shows alternatives to what an economy can produce The outer red line shows the maximum possible output with any given combination The outer red line shows the maximum possible output with any given combination This is the Production Possibilities Frontier This is the Production Possibilities Frontier

Production Possibilities To move from one point to another, the economy must make decisions The opportunity cost of making butter means making less guns

Production Possibilities Any point along the line shows the economy operating at maximum efficiency 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 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 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? Why does the graph curve instead of making a straight line? Law of Increasing Costs – as production increases for one item, amount needed as tradeoff increases as well Law of Increasing Costs – as production increases for one item, amount needed as tradeoff increases as well

Production Possibilities Every resource is best suited for certain types of goods Every resource is best suited for certain types of goods Farmland and cows make butter Farmland and cows make butter Metals and factories make guns Metals and factories make guns To convert butter production to guns, you must sell the cows and build new factories on the land To convert butter production to guns, you must sell the cows and build new factories on the land

OBJECTIVES 1.1 EXPLAIN why scarcity and choice are basic problems of economics IDENTIFY land, labor, and capital as the three factors of production, and identify the two types of capital EXPLAIN the role of entrepreneurs EXPLAIN why economists say all resources are scarce

PROFILE – Gary Becker! Read p. 7 about Gary Beckers thoughts about the marriage market… hmmm… Then discuss with neighbor: 1. Do you agree or disagree that economics guides even lifes most personal decisions???

CFU… 1. Which of the following are factors of production? 1. Which of the following are factors of production? a. Capital and Land a. Capital and Land b. Scarcity and shortages b. Scarcity and shortages c. Technology and productivity c. Technology and productivity d. economics and business decisions d. economics and business decisions

2. Which of the following is an example of using physical capital to save time and money? a. hiring more workers to do a job? b. building extra space in a factory to simplify production c. switching from oil to coal to make production cheaper d. lowering workers wages to increase profits

3. To what part of an industry does a workers education contribute? 3. To what part of an industry does a workers education contribute? a. technology a. technology b. physical capital b. physical capital c. human capital c. human capital d. scarce resources d. scarce resources

4. Which of the following is an entrepreneur? 4. Which of the following is an entrepreneur? a. a person who earns a lot of money as a singer or dancer a. a person who earns a lot of money as a singer or dancer b. a person who creates a game and sells it to a game manufacturer b. a person who creates a game and sells it to a game manufacturer c. a person who starts an all-organic cleaning supplies business that employs others c. a person who starts an all-organic cleaning supplies business that employs others d. a person who works as a highly paid computer programmer d. a person who works as a highly paid computer programmer

5. What is the difference between a shortage and scarcity? 5. What is the difference between a shortage and scarcity? a. A shortage can be temporary or long-term, but scarcity always exists. a. A shortage can be temporary or long-term, but scarcity always exists. b. A shortage results from rising prices; scarcity results from falling prices. b. A shortage results from rising prices; scarcity results from falling prices. c. A shortage is a lack of all goods and services; scarcity concerns a single item. c. A shortage is a lack of all goods and services; scarcity concerns a single item. d. There is no real difference between a shortage and scarcity d. There is no real difference between a shortage and scarcity

6. What does an economist mean by the term LAND? 6. What does an economist mean by the term LAND? a. farmland only a. farmland only b. food crops grown on farmland as well as the farmland itself b. food crops grown on farmland as well as the farmland itself c. goods and services that are produced form the land c. goods and services that are produced form the land d. all natural resources used to produce goods and services d. all natural resources used to produce goods and services

Check your answers 1. a. capital and land 1. a. capital and land 2. b. building extra space in a factory to simplify production 2. b. building extra space in a factory to simplify production 3. c. human capital 3. c. human capital 4. c. a person who starts an all-organic cleaning supplies business that employs others 4. c. a person who starts an all-organic cleaning supplies business that employs others 5. a. A shortage can be temporary or long-term, but scarcity always exists! 5. a. A shortage can be temporary or long-term, but scarcity always exists! 6. d. all natural resources used to produce goods and services! 6. d. all natural resources used to produce goods and services!