Economics

Economics is.. The study of the ways in which man organizes himself for the production and distribution of goods and services. (In the US we use capitalism.) OR The study of how people seek to satisfy their needs and wants by making choices. Now in your own words…(high school speak??)

Two ways we study economics… Microeconomics Macroeconomics

Microeconomics Micro - think small –Individual decision makers: households and firms –How do their actions change as a result of changes in the economy (for example, price changes.)

Macroeconomics Macro - think big –Study the economy as a whole –Focus on unemployment, inflation… – liA19eY&feature=relatedhttp:// liA19eY&feature=related

The Fundamental Economic Problem… SCARCITY: Unlimited needs and wants… Limited resources to produce goods and services. A treat anyone??

Scarcity v Shortage Scarcity is a constant There will always be only 24hrs in a day. Shortage is a short-term problem. The store was out of my favorite chocolate bar. I have to wait until tomorrow!

What are your unlimited wants and needs? 20 second contest - who can list the most?

Goods and Services Businesses use limited resources to produce goods and services to meet our needs and wants… Your top 10 goods and services are??? Speaking of resources…

Resources aka Factors of Production Economists classify resources into 4 categories 1.Land Natural resources The payment for Land is RENT 2.Labor Human resources The payment for Labor is WAGES 3.Capital (a product of Investment) Tools, machines, factories The payment for Capital is INTEREST 4.Entrepreneurship The special ability of risk-takers to combine land, labor and capital in new ways in order to make profit The payment for Entrepreneurship is PROFIT

Special Note!!! Capital in Economic terms is NOT $$$$$$ Money$$$$$$ Money doesn’t produce anything

Check for understanding Now that you know these terms, let’s see if we can use them to sort these factors. At the top of a paper write Natural Resources, Human Resources and Capital Goods. Place these items under the correct heading. Delivery Truck Teacher Factory Tree ATM machine Bushel of corn River Hair stylist Gold Barrel of oil Do we all agree on the placement of these items?

Choices, Choices, Choices Remember TANSTAAFL… Seinfeld video

Trade Offs vs Opportunity Cost Economic Principles 1.People Choose 2.People’s Choices involve costs

Trade Offs v Opportunity Cost Trade - Off: *Giving up one benefit to gain another. *A trade for one thing in exchange for another Opportunity Cost: *Value of the next highest valued alternative (the next best choice) *The most desirable alternative given up as a result of a decision.

Trade -Off… Friday evening will you… Go on a date Go out with friends Stay home and watch tv Read your economics book (on-line :) Go camping with your family…

Trade-off… The ones you don’t choose are your trade- offs. Government trade-offs are referred to as “Guns or Butter” = military or consumer goods = tanks or schools. Remember scarcity - we can’t have it all! What are your trade-offs for being in school today?

Opportunity Cost The next best trade-off (your second choice) is your opportunity cost… Did you go on a date and give up watching your favorite show? What was your opportunity cost for being in this class today?

Beyond Opportunity Cost: Cost/Benefit Analysis Choices are often not all or nothing. Sleep an hour later and skip breakfast? Sleep a few minutes later and have cold cereal instead of pancakes and bacon. This involves THINKING AT THE MARGIN.

Marginal Cost/Benefit Marginal cost or benefit is the extra cost of adding one unit. As long as the benefits outweigh the costs, it pays to add more units.

Examples: In business, will the company earn more money than it costs to add the extra employee? Will the taste and energy from the pancakes and bacon be better than the missed sleep?

Your turn to practice… Factors of Production Contest Opportunity Cost Practice Sheet