Economics Warm Up Create your own definition of economics Make a list of what you think are essential economics ideas

Economics 7.01: Intro to Economics Ch. 18.1

I. Factors of Production Resources used to make all goods and services A.Land- includes all natural resources B.Labor- is the effort for which someone is paid 1.White collar workers- high skilled office work 2.Blue collar workers- low skill manual labor

C.Capital- any human-made resource to invest to produce goods or services 1.Physical capital- buildings, tools, machines, etc 2.Human capital- knowledge and skills a worker gains through education and experience

D.Entrepreneurs- risk-takers who decide how to combine other factors of production to create new goods and services

Name that Factor of Production 1.Bill Gates 2.Oil 3.Going to school 4.Hammer 5.The night shift at McDonalds 6.A forest 7.10 years experience teaching 8.Paper factory 9.$ A 10-year old at a lemonade stand Create your own definition of economics Make a list of what you think are essential economics ideas

II. Scarcity and Choice A.Needs and Wants 1.Need- something necessary for survival 2.Want- desire not necessary for survival 3.Consumption- consuming or use of economic goods B.Economics- the study of how people seek to satisfy needs and wants with limited resources

C.Consumer sovereignty 1.power of consumers to decide what gets produced 2.producers meet demands or go out of business

Pizzeria Madness 1.What resources in this activity were plentiful and what were scarce? 2.What was the best strategy to win this activity? 3.Explain how this activity emulates the definition of economics.

III. Scarcity A.Goods and Services 1.Goods- physical objects 2.Services- actions or activities that one person performs for another B.Scarcity- 1.limited quantity of a resource to meet unlimited wants 2.This is the driving force of economics

Warm-Up What is the difference between physical capital and human capital – give an example of each. What are the four factors of production? How does consumer sovereignty affect the businesses of Coke and Pepsi co.?

D.Entrepreneurs- risk-takers who decide how to combine other factors of production to create new goods and services

Name that Factor of Production 1.Bill Gates 2.Oil 3.Going to school 4.Hammer 5.The night shift at McDonalds 6.A forest 7.10 years experience teaching 8.Paper factory 9.$ A 10-year old at a lemonade stand 11. Create your own definition of economics

Be an Entrepreneur… State the following: What your product is. How you will sell it. Where you will get the resources from. What people would be interested in your product? How you will pay to start up this business. What kinds of physical capital will you need? What kinds of human capital will you need? The name of the product. The logo design.

Economics 7.2-3: “Trade-offs and Costs” Ch. 18.2

I. Trade-offs A.Trade-off- the process of giving up one desire in order to satisfy another desire 1.Ex: video game vs. give girlfriend a present 2.Ex: 2 more hours of sleep vs. going to movie premier

Read p What two factors are taken into account in a cost-benefit analysis? Looking at the graph on page 508, at what point should the farmer stop farming more acres? 2.Define diminishing marginal benefit. Why does marginal benefit diminish with increases in quantity?

B.Opportunity cost- value of what is given up in a trade-off 1.Ex: Dating- cost is not dating some other person 2.Ex: College vs. working- cost is $ of college and amount of $ gained from working

C.Immediate gratification- when you give up something in the long-term to satisfy an immediate want

Pizzeria Madness 1.What resources in this activity were plentiful and what were scarce? 2.What was the best strategy to win this activity? 3.Explain how this activity exemplifies the definition of economics.

II. Calculating costs A.The total costs of any business includes both fixed and variable costs B.Fixed cost- cost that does not change regardless of output (ex: rent, labor) C.Variable cost- cost does go up or down depending on output (ex: supplies)

Be the Boss Come up with your own business. 1.Explain the factors of production that are used in the development of your business. 2.Are you providing goods or services? 3.What are the fixed costs of your business? What are the variable costs? 4.What trade-offs are there to consider in the running of your business? What are the opportunity costs of those trade-offs?

Warm Up What is an opportunity cost in the following scenario? Going to a Movie vs. Buying a mother’s day gift Which is the variable cost and which is fixed? You have a rent of $ a month and your food supply costs for your restaurant fluctuate between $200 and $600 depending on the time of year. Think Ahead: What is the marginal cost of the 11 th calculator? If I pay $ for 10 calculators, and I pay $ for 11 calculators.

III. Marginal Costs and Benefits A.A cost-benefit analysis allows a producer to know when to stop production B.You must first figure out marginal (one additional) cost- the price of producing one additional unit 1.Ex: it takes $20 to produce 10 toy cars What is the marginal cost of producing one more car? $20/10 cars= $2 per car

C. Marginal Benefit 1.The benefits of each item produced usually goes down with each item produced: the more produced, less it is worth 2.Marginal benefit- additional benefit of each additional unit produced Ex: The first 10 toy cars sell for $30 the next 10 toy cars sell for an additional $15 20 toy cars sell for $45 After the first 10 toy cars, what is the marginal benefit of each toy car produced? First 10- $30/10= $3 benefit Next 10- $15/10 =$1.50 benefit

Number of pizzasCostBenefit 1$10$15 2$20$29 3$30$42 4$40$54 5$50$64 6$60$72 7$70$78 8$80$82 9$90$83 10$100$81

Number of pizzasCostBenefit 1$10$15 2$20$29 3$30$42 4$40$54 5$50$64 6$60$72 7$70$78 8$80$82 9$90$83 10$100$81 Number of pizzas Marginal Cost Marginal Benefit 1$$ 2$$ 3$$ 4$$ 5$$ 6$$ 7$$ 8$$ 9$$ 10$-$

Number of pizzas Marginal Cost Marginal Benefit 1$$ 2$$ 3$$ 4$$ 5$$ 6$$ 7$$ 8$$ 9$$ 10$-$

Number of IPadsCostBenefit 1,000,000$300$500 2,000,000$600$980 3,000,000$900$1430 4,000,000$1200$1855 5,000,000$1500$2255 6,000,000$1800$2605 7,000,000$2100$2930 8,000,000$2400$3230 9,000,000$2700$ ,000,000$3000$3770 Review When should Apple stop producing Ipad’s? What is cost-benefit analysis? What is the purpose of finding the marginal benefit of production?

Number of iPad’s Marginal Cost Marginal Benefit 1$300$ 500 2$300$ 480 3$300$ 450 4$300$ 425 5$300$ 400 6$300$ 350 7$300$ 325 8$300 9 $ $ 300$250

Economics : Maximizing Production

I. Specialization A.Division of Labor- assigning small number of tasks to each worker B.Specialization- workers focus on one activity only, allows them to work faster and more efficiently

II. Labor and Output A.Marginal Product of Labor- change in output from hiring one additional worker B.Increasing Marginal Returns- increase return for workers 1.If there are three tasks in creating a product, MPL increases for each worker hired 2.Specialization increases per worker hired

C.Diminishing Marginal Returns- decrease return if too many workers 1.after first three workers (one for each task), benefits of specialization end 2.adding more workers increases total output but at a diminishing rate 3.MPL decreases as number of workers increases

Number of workers Output (pizzas per hour) Marginal Product of Labor

D.Law of diminishing returns: the more you have of something, the less useful it is Ex: the more workers you hire, because of DMR, at some point each additional worker will add less output than the worker added before