1. Economics: The Economic Way of Thinking

2. .
KEY CONCEPT
Scarcity is the situation that exists because wants are unlimited and resources are limited.

3. Scarcity: The Basic Economic Problem
A. KEY CONCEPTS
1. Wants — desires that can be met by consuming products
2. Needs — things necessary for survival
3. Scarcity — lack of resources available to meet all human wants
not a temporary shortage
4. Economics — study of how people use resources to satisfy wants
a. examines how individuals and societies choose to use resources
b. organizes, analyzes, interprets data about economic behaviors
c. develops theories, economic laws to explain economy, predict future

4. I. What Is Scarcity? A. Principle 1: People Have Wants
1.People make choices about all their needs and wants
2. Wants are unlimited, ever changing
B. Principle 2: Scarcity Affects Everyone
Scarcity affects which goods and services are provided
1. Goods — physical objects that can be bought
2. Services — work one person does for another for pay
3. Consumer — person who buys good or service for personal use
4. Producer — person who makes a good or provides a service

5. II. Scarcity Leads to Three Economic Questions
A. Scarcity affects society and producers as well as individuals
B. Society must answer three basic economic questions:
1. what will be produced?
2. how will it be produced?
3. for whom will it be produced?

6. III. The Factors of Production
Factors of production — resources needed to produce goods and services
include land, labor, capital, entrepreneurship
supply is limited

8. Visual Creations
Select one of the following subjects: Economic Needs/Wants, Scarcity, or the Factors of Production and create a visual aid designed for teaching the concept.
Grades will be based on CREATIVITY and EFFORT.

9. Economic Choice Today: Opportunity Cost
Section 2

10. I. Making Choices A. KEY CONCEPTS Economic choices shaped by
Incentives — benefits that encourage people to act in certain ways
Utility — benefit or satisfaction gained from using a good or service
To make choices, people economize:
make decisions according to best combination of costs and benefits

11. Factor 1: Motivations for Choice
People motivated by incentives, expected utility, desire to economize
They weigh costs against benefits to make purposeful choices
motivated by self-interest: look for ways to maximize utility
Factor 2: No Free Lunch
All choices have a cost
choosing one thing means giving up another, or paying a cost
cost can take form of money, time, other thing of value

12. Trade-Offs and Opportunity Cost
Trade-off is alternative people give up when they make a choice
usually means giving up some, not all, of a thing to get more of another
Opportunity cost is value of next-best alternative a person gives up
not the value of all possible alternatives

13. The Global Economy
The Amazon’s River basin in Brazil's the world’s largest rainforest. About 5,000 soccer fields are being destroyed everyday. What is the future trade off?

14. "Lungs of our Planet"
More than 20 percent of the world oxygen is produced in the Amazon Rainforest.
The U.S. National Cancer Institute has identified 3000 plants that are active against cancer cells. Twenty-five percent of the active ingredients in today's cancer-fighting drugs come from organisms found only in the rainforest.
Scientists estimate nearly 80 to 90 percent of tropical rainforest ecosystems will be destroyed by the year 2020.

17. Analyzing Choices
Cost-benefit analysis — examination of costs, expected benefits of choices
one of most useful tools for evaluating relative worth of economic choices

19. Analyzing Choices Marginal cost Marginal benefit
additional cost of using one more unit of a good or service
Marginal benefit
additional benefit of using one more unit of a good or service

20. Analyzing Production Possibilities

21. Graphing the Possibilities
Economic models — simplified representations of economic forces
Production possibilities curve (PPC) is one model
maximum goods or services that can be produced from limited resources
also called production possibilities frontier

22. Graphing the Possibilities
PPC based on assumptions that simplify economic interactions
resources are fixed
all resources are fully employed
only two things can be produced
technology is fixed

25. Production Possibilities Curve
PPC runs between extremes of producing only one item or the other
Data is plotted on a graph; lines joining points is PPC
shows maximum number of one item relative to other item
PPC shows opportunity cost of each choice
more of one product means less of the other

26. Concepts revealed by PPC:
Efficiency — producing the maximum amount of goods and services possible
Underutilization — producing fewer goods and services than possible

27. What We Learn from PPCs Example: Efficiency and Underutilization
Each point on PPC represents efficiency
points inside curve mean underutilization; outside curve cannot be met
Law of increasing opportunity costs
as production switches from one product to another, more resources needed to increase production of second product

28. Example: Increasing Opportunity Costs
Increase in opportunity cost — each new unit costs more than last one
Reasons for increasing cost of making more of one product
need new resources, machines, factories
must retrain workers
Costs paid by making less and less of other product

29. Changing Production Possibilities
A Shift in the PPC
A country’s supply of resources changes over time
Example: U.S. in 1800s grew, gained resources, workers, new technology
new resources mean new production possibilities beyond frontier
Increased production shown on PPC as shift of curve outward
Increase in total output called economic growth

31. The Economists Toolbox

32. Working with Data Using Economic Models Using Charts and Tables
Statistics — numerical data or information
show patterns of human behavior
Using Economic Models
Using Charts and Tables
Using Graphs

33. Microeconomics and Macroeconomics
Microeconomics — studies behavior of individual players in an economy
includes individuals, families, businesses
Macroeconomics — studies behavior of economy as a whole
topics include inflation, unemployment, aggregate demand and aggregate supply

35. Positive Economics and Normative Economics
Positive economics describes and explains economic behavior as it is
uses verifiable facts; does not make judgments
Normative economics studies what economic behavior should be
makes value judgments to recommend future actions