1. Economic Choices
Goal 7

2. What is Economics?
Study of …how individuals, businesses and nations can best use their limited resources
How people can get the most of wants and needs from the limited amount available and at the lowest cost

3. Needs and Wants NEEDS WANTS must haves to survive
food, clothing, shelter, water, etc.
WANTS
all goods and services a person desires and would have if they could
unlimited wants…but limited resources to obtain our wants

4. Resources Things humans can put to productive use
Money, people (labor), time, information, machines and natural resources

5. Natural Resources
Raw materials in nature used to produce what humans need or want
Timber, water, iron ore, crude oil, natural gas, coal, fish, uranium, and arable (farmable) land

6. Resources (cont’d) renewable nonrenewable
replenished/replaced over time
ex: timber
**Can be expended if not given a chance to renew**
nonrenewable
cannot be replenished over time
ex: petroleum takes millions of years to form

7. So…
people are forced to make decisions/choices about how to spend their limited resources.

8. Basic Economic Questions
What to produce?
How will I produce it?
For whom will it be produced?

9. 4 Factors of Production Elements of any business
allows resources to be properly processed in order to produce things that are needed/wanted
Capital, Entrepreneurship, Land and Labor (CELL)

10. Factors of Production CAPITAL
Structures and equipment involved in the manufacturing process
Ex: nail guns, machinery, computer, grills, tools, lighting and assembly lines

11. Factors of Production Entrepreneurship
creative, managerial, and risk-taking capabilities involved in starting up and running a business
Ex: organizing the business, developing the business model, raising funds to open for business
human activity
**May be labor, but not all labor is entrepreneurship**
Ray Kroc and McDonald’s
Bill Gates and Microsoft

12. Factors of Production Land property on which production plant is built
all natural resources involved
“more than the ground you stand on”

13. Factors of Production Labor
contribution of human workers to the production process
mental and physical efforts
highly skilled and unskilled labor
Ex: open-heart surgery, assembly-line work, janitorial services, and writing a book

14. Productivity rate at which goods/services can be produced (time)
key factor in determining economic growth
increased productivity = more goods available to buyers and financial rewards for laborers

15. Why factors of production?

16. 7.2 Scarcity and Decision-Making
What is scarcity?
Scarcity- lack of adequate resources to obtain all of one’s wants and needs
Different from rare (happens from time to time, but not desired)
Ex. Hurricanes are rare not scarce even though only a few occur every year

17. Examples of Scarcity Gold is scarce. -people are willing to pay a lot
-Scarcity helps to establish pricing.
-more scarce an item the greater the item cost

18. Pricing
Pricing- sets monetary value on producers’ output by establishing the amount of money they will be willing to exchange their goods and services with consumers
scarcity increases (by becoming rare or by people wanting more than is available) = price increases

19. Producers and Consumers
Consumer- economic actor purchasing or receiving goods/services
Producers- economic actor who makes or provides the goods/services
*must consider various factors when setting prices

20. Salaries vs. Wages
Money paid to people in exchange for their labor to produce output:
Salaries- paid a set amount, not tied to hours or amount produced
Wages-paid by the hour, tied to amount of hours worked or amount produced

21. Goods and Services
Goods- material products made to satisfy wants and needs
ex: hot dogs, frisbees, automobiles, medicines, textbooks
Services- activities performed to satisfy wants and needs
ex: medical care, education, trash pick up, massages

22. Producers want to sell goods for highest price
Consumers want to pay the smallest amount

23. Result of Scarcity
Economic actors (households, businesses, governments) must often make choices between two or more options that offer less than they would like
Due to limited resources…
we must make decisions between options…
consumers follow the decision-making model

24. Decision Making Model Define the problem List the alternatives
State the Criteria
Evaluate the alternatives
trade-off and opportunity costs of each
Make a decision

25. Evaluating Alternatives
Open book to page 6
trade-offs- the act of giving up one thing to have another
opportunity costs- the alternative option that is lost when one makes the decision

26. 7.3 Evaluating Alternatives
Open Blue Book to page
trade-offs- the act of giving up one thing to have another
opportunity costs- the alternative option that is lost when one makes the decision

27. 7.3 Costs and Decisions facing Producers
Blue Book page 153 (READ with a partner)
Reggie and his lemonade stand
Provides lemonade:
For some it’s a want
For some it’s a need
In all circumstances it provides immediate gratification (instant/short term satisfaction)

28. Costs to Producers
Variable costs- costs that go up or down when the amount of products produced changes
Fixed costs- costs that never change depending on the amount produced

29. Variable Costs Total Costs
Fixed Costs

30. Motivating Producers
Incentives- form of encouragement to influence economic decisions
Marginal Cost- cost of producing “one more unit”

31. 7.4 Increasing Productivity
Productivity- ability to turn input into output in a certain amount of time
How can we increase productivity???
specialization
business organization
technology

32. Specialization of Labor
Specialization – devoting certain resources to a specific task
Division of labor- splitting up work into smaller and more specialized tasks
Increases efficiency, quality of output and amount produced

33. Specialization con’t
Industrialization began in America in the early 1900s…
Factory- facility designed and used for producing particular goods and services
Mass production- production of large quantities of a particular good
Production is cheaper and faster

34. Business Organization
Before, individual merchants would produce and sell their own products…
business organization allows owners to gain profits from production and pay their laborers a monetary wage/salary

35. Business Organization
Entrepreneurs- owners or chief executives
Management- workers who specialize in managing and directing laborers
Laborers- individuals whose labor produces goods or services
Assembly line – putting together a product piece by piece
Every laborer has a specific task
Increases production
Decreases the price of the good

36. Henry Ford’s Assembly Line
Ford made automobiles affordable to the “average man” and revolutionized the production of automobiles.

37. Increasing Productivity - technology
Technology- the application of scientific breakthroughs to commerce and industry
ex. Eli Whitney’s cotton gin
innovation- something that profoundly changes and improves the way things are done
(ex. Henry Ford’s assembly line)
invention- any new form of technology created to meet a need
(ex. cotton gin)

38. Other reasons for economic growth
Investments in human capital (that which makes laborers more productive)
Improved health care, education, training
unskilled workers- workers whose jobs require minimal amounts of training and few specific skills
(ex. waiters, construction workers, garbage collectors, fast food workers)
skilled workers- workers whose jobs require greater training or education and more skills
(ex. doctors, engineers, teachers and executives)

39. Blue vs. White collar workers
Blue collar jobs- occupations that require manual labor
ex: electricians, plumbers, factor workers
some are considered skilled
White collar jobs- jobs that typically do not require manual labor
most are considered skilled

40. Workers for machines
Many factories have turned from using human workers
to using robotics…
…because it completes the same task for less cost.
automation- process of replacing human labor with machines
robotics – machines that can be programmed to produce goods without the need for constant human interaction

41. An industry greatly impacted by automation is
agriculture.
agribusiness- replacing small, labor-intensive family-owned farms with larger, capital-intensive company-owned farms
What are the trade-offs of innovation and invention?

42. 7.5 Impact of Investment What is investment? Have you ever invested?
Investments increase productivity
Investments- use resources that could bring immediate benefits for gaining greater benefits at a later time
Buy stocks or put money into 401K at work

43. Investments by firms/businesses
Capital investment- investing in capital goods and human capital
Capital goods- products used to make other goods or provide services
Bolts, metal, plastic, wiring, van
Allow workers to do more in a given timeframe
Consumer goods- items purchased for final use by individuals, households, and firms
Skis, toaster, bottle of soda
RECYCLING- (capital or consumer goods)

44. Laborers’ investments
How can laborers increase productivity??
Physical condition
Education and Training
-increase knowledge, skills and value as workers
-employers are willing to pay more
-you invest now to help yourself in the future
May take place in a classroom, using a book or on the job through real-world experiences

45. Investments With investments…come trade-offs and opportunity costs
Investments are made when the likely return is thought to be more valuable than the otherwise immediate gratification.

46. Output v. Input- determines the opportunity cost of lost production
To decide how to spend money (investments v. production/ consumption), businesses compare cost of investment versus the estimated future benefits.
Producer Price Index-
Maintained by US government
Used to estimate costs of goods
Measures average changes in prices for different goods
Output v. Input- determines the opportunity cost of lost production
Input- factors of production used to make a good or service
Output- amount of the good or service made

47. What conclusion might you make about output vs. input?
The more you put in the more you get.
BUT…in the short-run, the law of diminishing returns occurs.
Law of Diminishing Returns- as more and more of a variable input (input whose amount/frequency changes) is combined with a fixed input (unchanging input), the amount per input decreases.
EX: chefs in the kitchen; bubble gum

48. 7.6 Economic Systems Market Economy-
Producers are free to produce what they want and consumers may choose what they consume
Producers and consumers make these choices in a market
organized exchange of goods, services and resources within a given region and time
Theoretically…the US is an example

49. Exchange- trade of one thing for another
Producers have an incentive to produce what consumers want…$$$
Profit motive
Over the long-run, consumers control what products are produced via consumer sovereignty (producers base production on how much consumers demand the product)
May use advertising

50. Adam Smith and Wealth of Nations
Scottish economist
Published Wealth of Nations – defense of free market economies
Market is led by incentives:
Producers-make most money
Consumers- buy goods/services for lowest price

51. The “Invisible Hand”
“Invisible Hand”- unseen force directing the market produced the most efficient output of goods and services
Relies on Conditions:
Competition
Private property
Allow free enterprise (freedom to buy and sell)

52. Capitalism
Capitalism is a social system based on the recognition of individual rights (from Capitalism.org)
most of the means of production are privately owned and production is guided and income distributed largely through the operation of markets
(from Britannica Encyclopedia)