1. Foundations of Economics 2

2. Objectives Examine Factors of Production Analyze concept of scarcity Examine Marginal Analysis C1 PO1

3. Prioritization of Needs Maslow’s hierarchy says we all have needs, but some needs are harder to fill than others. List 5 “easy to fill” needs List 5 “hard to fill” needs Pair and share –Where do you get the resources to fill those needs?

4. Factors of Production Factors of Production(FOP’s)describe the combination of LAND, LABOR and CAPITAL resources necessary for production of goods/services

5. 3 Categories ALL FOP’s fall into one of three categories –LAND Atomic elements, organic compounds, natural resources such as water, soil…

6. –LABOR Production workers, Managers, Executives…

7. –CAPITAL Investment money, Creditworthyness, Transportation Tools, Production Tools…

8. FOP and ME Pick something you have with you today (clothes, phone, ect) –What elements/compounds are in it? –Where was it made, and by what kind of workers? –What tools were necessary to create that object? –What tools were necessary to get that object to where you purchased it?

9. FOP Limits All FOP’s run up against limits –“Natural Limits” on Land –#1 Russia, #4 USA, #15 Mexico, #208 Singapore –“Productivity Limits” on Labor Capacity 2009-10 WEF Rankings –#2 USA, #3 Singapore #60 Mexico #63 Russia –“Liquidity Limits” on Capital Investment 2009 GDP Rankings –#1 USA ($14 tril) #7 Russia, #11 Mexico, #45 Singapore

10. Scarcity limits on the availability and efficient use of FOP’s restrict a country’s potential economic development Rich countries combine high productivity and high liquidity, with access to internal and external natural resources (United States, EU, China, Japan) Poor Countries combine low productivity with low liquidity with poor access to natural resources –Story of Congo-Kinshasa

11. Scarcity Not all resources are equally available or convenient. These resources are called chronically“scarce” Scarcity= Long term, limited resource –Diamonds –Gold –Drinking Water

12. Scarcity 2 Scarcity is relative and can be at many levels for many reasons –International, National, Local –Scarce by supply (monopoly, cartel, quantity) –Scarce by demand (low market awareness) –Scarcity is part of the material/labor costs of production

13. Scarcity Beacause of scarcity, societies, producers and consumers must choose how “best” to use their resources

14. Choices 2009 US Federal Budget

15. Shortage Shortage= Short term lack of resource –Usually caused by a “acute” event –Can show drastic price increases –Disaster destroys houses=Rent prices? –Gasoline Pipeline breaks= Gas prices?

16. Surplus Surplus=Short Term excess of resources –Usually caused by an “accute”event” –Can show drastic price decreases Large amount of foreclosures= House Prices? Halloween candy on Nov 3= Candy Prices?

17. FOP and Marginal Analysis No producer or consumer can gather all the materials, process them and cover their needs by themselves. They rely instead on marginal analysis (figuring out what is most economical for their situation). –FOP’s help determine the production costs of all goods and services –These vary widely over time, distance and markets

18. Forbes 2009 World’s Richest 1 Warren Buffett (United States) 62 BillionUnited States 2 Carlos Slim Helu & family (Mexico) 60Mexico 3 Bill Gates (United States) 58United States 4 Lakshmi Mittal (India) 45India 5 Mukesh Ambani (India) 43India 6 Anil Ambani (India) 42India 7 Ingvar Kamprad & family (Sweden) 31Sweden 8 KP Singh (India) 30India 9 Oleg Deripaska (Russia) 28Russia 10 Karl Albrecht (Germany) 27Germany 11 Li Ka-shing (Hong Kong) 26.5 12 Sheldon Adelson (United States) 26United States 13 Bernard Arnault (France) 25.5France 14 Lawrence Ellison (United States) 25United States 15 Roman Abramovich (Russia) 23.5Russia 16 Theo Albrecht (Germany) 23Germany 17 Liliane Bettencourt (France) 22.9France 18 Alexei Mordashov (Russia) 21.2Russia 19 Prince Alwaleed Bin Talal Alsaud (Saudi Arabia) 21Saudi Arabia 20 Mikhail Fridman (Russia) 20.8Russia 1United States 269 Billionaires 2Japan29 3Germany28 4Italy17 5Canada16 6Switzerland15 7France15 8Hong Kong14 9Mexico13 10 United Kingdom 12 11Russia8 11Saudi Arabia8

19. Marginal analysis Bill Gates is walking down the street to a critical business meeting, when a gust of wind blows an $100 bill his way. Should he pick it up or keep going? Explain What if he was on vacation instead? Explain

20. Bill Gates Founder of Microsoft Harvard Drop-out Net worth (stocks, property, cash, ect) –$58 Billion (2009= #3 World) Mr Gates time in one year is worth $1837.91 per second!

21. Your Margins List 5 things you do to save on your expenses List 5 things you pay to have others do Analyze- why did you chose to save on those 5 items? Analyze- why do you pay on those 5 items Pair and Share

22. Three Economic Systems Three Major economic systems approach Marginal analysis in different ways Capitalism- People free to buy and sell most anything as supply and demand dictate price –Lassiez faire Socialism- Government ensures vulnerable people also have access to goods and services Communism-Government owns everything and divides it up –“From each, according to their abilities. To each according to their needs”