1. Chapter 1: What is Economics?

2. Section 1: Scarcity and Factors of Production

3. What is Economics?

4. The study of scarcity and choices Scarcity- limited resources for unlimited wants “There is no such thing as a free lunch”

5. Choices People need to decide how to use limited resources – Need: necessary for survival – Want: desirable but not essential

6. Goods and Services Goods: physical objects that are produced Services: actions performed

7. Factors of Production Land Labor Capital (Physical & Human)

8. Land Natural resources used to produce goods. – Oil, Trees, Iron-Ore

9. Labor Effort of people to create a product. – Manufacturers, managers, engineers, etc.

10. Capital Human made resources used to produce other goods. – Physical Capital – Human Capital

11. Physical Capital Human-made goods used to produce other goods.

12. Human Capital Skills and knowledge of a worker acquired through education and experience.

13. Entrepreneurship: The 4 th Factor of Production Entrepreneur: someone who combines land, labor, and capital to creates and services

14. In groups… Choose an object What was necessary for its creation? – Land? – Labor? – Capital (Physical and Human)? – Report back to class

15. Section 2: Opportunity Cost Because of scarcity: we need to make decisions about how to manage resources.

16. Economics: Science of Decision Making Trade-offs are alternatives given up when making a decision

17. Guns or Butter? Countries need to decide how they will use their resources If a country chooses to produce more military goods (“guns”) they will have less consumer goods (“butter”)

18. Opportunity Cost Opportunity cost is the most desirable alternative given up in a decision. DecisionBenefitOpportunity Cost Go to CollegeEducation, increased job opportunity Money earned/saved from working Work after High SchoolMoney earned/savedEducation, increased job opportunity

19. Thinking at the Margin Black and White decisions in economies are rare, thinking at the margin considers compromises and multiple scenarios.

20. Decisions at the Margin OptionsBenefitOpportunity Cost 1 st hour of extra study timeGrade of C on testOne hour of sleep 2 nd hour of extra study timeGrade of B on test2 hours of sleep 3 rd hour of extra study timeGrade of A on test3 hours of sleep

21. Decisions at the Margin OptionsBenefitOpportunity Cost Work for 1 hour$10One hour of studying Work for 2 hours$20Two hours of studying Work for 3 hours$30Three hours of studying

22. Section 3: Production Possibilities Curves Watermelons (millions of tons)Shoes (millions of pairs) 015 814 12 189 205 210 Production possibilities curves plot decision making on a graph, or curve

23. Production Possibilities Curve Watermelon s (millions of tons) Shoes (millions of pairs) 015 814 12 189 205 210

24. Frontier The Frontier represents maximum efficiency: the full production capability of the economy

25. Underutilization Underutilization: economy is not producing at capability – WHY?

26. Future Production Possibilities Curve Sometimes the entire curve shifts outward WHY?

27. Examples of trade-offs: Soviet Union The former Soviet Union prioritized military development at the expense of consumer goods and development.