What is Economics? Chapter 1.1

Needs and Wants A need is a basic requirement for survival and includes food, clothing, and shelter A want is a way of expressing a need and is NOT needed for survival

Kramer’s Needs and Wants

Kramer’s Needs Choc Milk Hand-Sanitizer Mommy

Kramer’s Wants Toys And more toys….

TINSTAAFL

There is no such thing as a free lunch Costs will always exist, even if you think it is free Examples?

Goods vs. Services Goods are physical objects that someone produces Examples include food, clothing, and video games

Services Services are actions or activities that one person performs for another Hairdresser, photographer, teacher, lawyer, firefighter, etc.

Problem of Limits People’s needs and wants are unlimited, but goods and services ARE limited. This predicament creates scarcity Scarcity forces people to make choices

So what is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices

Scarcity versus Shortage Shortages occur when consumers want more of a good or service than producers are willing to make available at a particular price NOT the same as scarcity Scarcity ALWAYS exists, shortages do not

Examples of Shortages

What in the world was a Furby anyway? Iphone/Ipad New items during Christmas shopping season

Are Shortages a good thing? Do shortages benefit or harm companies?

Factors of Production Land Labor Capital

Land Refers to all natural resources used to produce goods and services Farmland, oil, iron, coal, water, forests

Labor Effort people devote to tasks for which they are paid Doctors, teachers, assembly line workers

Capital Any human made resource that is used to produce other goods and services Can be both physical capital and human capital

Physical Capital Human made objects used to create other goods and services Machinery, tools, construction equipment

Human Capital Knowledge and skills a worker gains through education and experience You are in class right now in order to increase your human capital Main reason why people go to college

Entrepreneurs Entrepreneurs are people who decide how to combine resources to create new goods and services Start own businesses to provide a good or service They are risk takers Consumers of the factors of production

Opportunity Cost Chapter 1.2

Every Decision has a Cost We cannot do two things at once, therefore we must give up something when we make decisions Do not confuse the idea of trade-offs and opportunity cost

Tradeoff vs. Opportunity Cost A tradeoff is the act of giving up one benefit in order to gain another, greater benefit For instance, you can’t play both football and tennis for PHS

Government involves tradeoffs “Guns or Butter” Spending money on “guns” refers to money devoted to the military Spending money on “butter” refers to money devoted to domestic needs

Opportunity Cost The most desirable alternative given up when you make a decision If you didn’t decide to do _______, you would have done _______.

Thinking at the Margin Process of deciding whether to do or use one additional unit of some resource This is when you decide how much more or less to do

Cost/Benefit Analysis In order to do this, you must understand the role of marginal costs and marginal benefits Marginal cost is the extra cost of adding one unit Marginal benefit is the extra benefit of adding the same unit

Example Do the benefits of sleeping in one extra hour outweigh the costs? As long as the marginal benefits exceed the marginal costs, you will make that decision

Discussion What marginal costs and benefits might a business owner have to consider when trying to decide whether to hire one, two, or three additional workers?

Answer Must consider how much added output each worker would provide, compared to the cost of added wages Again, if the benefits outweigh the costs you will continue to hire more workers

Assignment Page 12, #3-10

1.3: PPC Curves

PPC Curves A graph that shows alternative ways to use an economy’s productive resources Used to compare two separate goods and services