Economics Resources, Opportunity Cost, and the PPF

Introduction Today we will be talking about how scarcity requires individuals, businesses, and governments to make economic decisions that involve tradeoffs. Rolling Stones Cant always get what you want

Vocab for this lesson Goods Services Factors of Production Entrepreneurship Capital Productivity Opportunity Cost Production Possibilities Frontier

What do we remember? Definition of economics About resources? Scarcity is everywhere Goods — physical objects produced for sale Services — Activities done for us by others Scarce because of the resources needed Land Labor Capital

Scarcity is forever, Shortages Temporary Shortage — lack of something that is desired Less of a good or service available than people want at the current price Causes Trends in fashion Musical acts Wars and natural disasters (Katrina)

How are goods produced? Economists look at inputs and outputs Inputs---Factors of production Go into the process (land, labor, capital) Outputs Goods and services produced Some look at entrepreneurship Willingness to take risks involved in starting a business

Land Resources More than just physical property Really is “ gifts of nature ” Air Soil Water Solar energy Electromagnetic Spectrum Perpetual, Renewable, Non Renewable

Labor Resources Labor The time and effort people devote to producing goods and services in exchange for wages Physical and mental Human capital Knowledge and skill that people gain Impossible to overstate importance Nigeria vs. Japan

Capital Resources Tools, machines, and buildings used in the production of other goods and services Money is financial capital Pizza delivery car is capital good Since Industrial Revolution capital has been replacing labor Good or bad?

Put it all together … Three resource types are scarce Use them efficiently, increase productivity Productivity = output/input (any individual input) Example: Lumber mill productivity Ratio of board feet produced per hour How do you raise productivity?

Making choices What do we give up when making a choice? Economists assume people seek to make themselves better off Maximize the utility of their decisions Utility is satisfaction or pleasure one gains from consuming a product or service Example: Which college to attend Never easy---never have total information

Opportunity Cost The best thing we give up to get what we want Example: Mick Jagger Musician, or … College degree Thinking at the margin Seldom all or nothing Law of diminishing marginal utility

How to measure what we gain and lose in choices? The Production Possibilities Frontier Economic model Line graph Shows how economy can use its resources to produce two goods Helps identify tradeoffs and opportunity costs Shows economic efficiency Using resources to produce maximum