Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants Microeconomics: Branch of economics that studies decision-making by a single individual, household, firm, industry or level of government. Macroeconomics: Branch of economics that studies decision-making for the economy as a whole

Modified for East High - Period 5! Economics Money, Power, Respect By Ms. C. Ibena-Berry Modified for East High - Period 5!

Economics Outline for the semester Materials Requirements Ticket out Song just for you…. ”Money, Power, Respect http://www.youtube.com/watch?v=_K4lZBxGTnM&feature=player_detailpage

Problem of Scarcity Scarcity: The condition in which human wants are forever greater than the available supply of time, goods, and resources. 3 Economic Questions What will be Produced? How will it be Produced? For whom will it be produced?

Positive vs. Normative Positive Economics: An analysis limited to statements that are verifiable Normative Economics: An analysis based on value judgment

Scarce Economic Resources Factors of Production (FOP): The resources used to create goods and services Land: Any natural resource provided by nature. Labor: The mental and physical capacity of workers to produce goods and services. Capital: Any physical man-made good used to produce other goods. Entrepreneurship: Vision, skills, and risk-taking needed to create and run a business.

Trade-off: Any alternative that could be chosen Opportunity Cost Trade-off: Any alternative that could be chosen Opportunity Cost: The best alternative sacrificed for a chosen alternative

The Invisible Hand Theory Adam Smith: Scottish Economist (1723-1790) The Invisible Hand Theory “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest

Guns PPC Butter Production Possibilities Curve — Marginal Analysis A 20 40 60 80 100 120 140 160 Guns Butter PPC Production Possibilities Curve A curve that shows the maximum combinations of two outputs that an economy can produce, given available LLC. B Z Unattainable point U Underutilization C Assumptions about the PPC Fixed Resources Fully Employed Resources Technology Unchanged D

Production Possibilities Curve — Law of Increasing Opportunity cost 20 40 60 80 100 120 140 160 Guns Butter A B C D PPC Marginal Analysis An examination of the effects of additions to or subtractions from a current situation. The Law of Increasing Opportunity Costs The principle that the opportunity cost increases as production of one output expands. This is responsible for the “bowed shape” of the PPC. Reasoning not all workers are equally suited to producing one good , compared to another. as we shift production levels of butter, we gradually tap into the best gun-making resources

Movements along the PPC Production Possibilities Curve — Movements and Shifts 20 40 60 80 100 120 140 160 Guns Butter PPC2 B C Shifts in the PPC Changes (increases) in the levels of a country’s LLC will cause the PPC to shift from PPC1 to PPC2 A PPC1 Movements along the PPC Changes in the needs and wants cause a country to choose a different point along an existing PPC