Intro Question– How does economics affect everyone?

Pair/Share  Get with a partner and share your ideas.  You will be sharing your partner’s ideas to the class.  How does economics affect everyone?

Something to Think About!  How many people touched your shirt before it came to be yours?  How does your money affect the world?  How can you vote with your dollar?

So how does it?  Our resources are limited.  But our needs and wants are unlimited.  Which leads to difficult decisions about efficiency and necessity.  Economics is about freedom.  You can do what you want with your money.  The markets respond to the dollars spent.  But to do what you want, you have to have the money.

What is scarcity?  The constant condition in which only limited amounts of goods and services are available to meet unlimited wants and needs.  What is there not enough of in your life?  Money? Time? Love? Donuts?  What about time to create lasting friendships.  The Sims

Think about it.  How do you make the correct decision?  How do you know which is more important?  How does scarcity force people to make economic decisions?

Wants vs. Needs WantsNeeds Arrange the following items in their respective positions: Flowers, Water, Car, In-N-Out, Gasoline, Coffee, Clothes

Wants and Needs  Why did the items land where they did?  Did any items fall in both categories?  Are all wants and needs the same for all people?

Question:  How do all decisions in your life and in the world somehow involve trade-offs?  Share your thoughts on the question.  You will be sharing your partners ideas to the class.

Opportunity Costs Chapter 1 Section 2

Trade-Offs  Guns or Butter?  Government Dilemma  Spend on Military needs or domestic needs.  Why is the government faced with these tough decisions?  Scarcity.

Opportunity Costs!  The most valuable thing you are forced to give up in order to carry out a decision is your opportunity cost.  When you stay up late at night to study, what is your opportunity cost?  What do you gain from studying more?  What do you lose?  What about the opposite scenario?

The Cost of College Year Direct Costs of College Opportunity Costs (Lost Wages) 1$20,000$16,000 2$20,500$16,500 3$21,000$17,000 4$21,500$17,500 Total$83,000$67,000

The Total Cost of College College Costs + Opportunity Costs = $83,000 + $67,000 = $150,000

Economic Mystery "When it takes, at least, an additional seven years of schooling, and over one hundred thousand dollars in costs and lost earnings, why would a person want to graduate from college instead of dropping out after the ninth grade?"

Pillows can cost you!  How were keeping extra decorative pillows benefitting Ben Stiller?  What were the costs of keeping those pillows and preparing them daily?  Is the value of the pillows worth more than the upkeep cost?  Time can be an opportunity cost.

Marginal Analysis  Taking the time to analyze how each aspect of a decision, when changed, affects the final outcome of the decision.  Study or Sleep  How each hour helps your grade improve vs. how each hour of lost sleep affects your mood.

Marginal Analysis – Sleep or Study? OptionsMarginal BenefitMarginal Cost 1 st hour of extra study time Grade of C on test1 hour of sleep 2 nd hour of extra study time Grade of B on test2 hours of sleep 3 rd hour of extra study time Grade of A on test3 hours of sleep

Marginal Analysis – Food!  Combo #1  Burger and Fries - $10  Combo #2  Burger, Fries, and a Milkshake - $13  Is the milkshake worth the extra $3?  This is thinking at the margin.  What is the opportunity cost of that $3?

The Next Step: Business!  In order to create a successful business, an entrepreneur must be a quality marginal analyst.  Use Resources Wisely  Combine the factors of production to create new products or services.  Factors of Production – All resources combined  Scarcity – Not everyone can be successful  Competition – Not everyone can be good enough  Efficiency – May the most efficient win!  LAND, LABOR, and CAPITAL

Factors of Production - Land  For economists, land is more than dirt!  Land – All natural resources found on or under the ground that are used to make products/services.  Water, Forest, Fish, Iron, Coal, Plants  Why wouldn’t a parking lot be considered a land factor of production?

Factors of Production - Labor  Labor is more than elbow grease!  Labor – All of the human time, effort, and talent used to product goods/services.  Garbage Collectors, Mechanics, Surgeons, Police, etc.

Factors of Production - Capital  Capital is more than just money!  Capital – Resources used/made by people and kept for use in producing and distributing goods and services.  Physical vs. Human Capital  Tools, machinery, factories, offices, cell phones, roads, airports, etc = Physical Capital

Factors of Production - Capital  Human Capital – A person’s knowledge or skills used to help create goods/services.  Human capital is the key to quality entrepreneurial work.

Land or Capital – Quick Test!  Ice at Mount Everest  Ice in a skiing field  Sea water  Sea water in a seafood restaurant  Sharks in the Atlantic Ocean  Sharks at Sea World

Exit Question -  What do you believe has the potential to be a large economic success in the future in regards to business opportunities?  Think of the field/item/service that will be a great opportunity.