1. Unit 1: Basic Economic Concepts

2. REVIEW Explain relationship between scarcity and choices.
Pick a partner near you to do this review. Be prepared to answer.
Explain relationship between scarcity and choices.
Differentiate between positive & normative.
Differentiate between price and cost.
Differentiate between consumer and capital goods.
Give examples of each of the 4 Factors of Production.
Define tradeoffs.
Define opportunity cost.
Name 10 different teachers at SHS.

3. The Economizing Problem…
WE HAVE A PROBLEM!!
The Economizing Problem…
Scarcity
Society has unlimited wants but limited resources

4. The Production Possibilities Curve (PPC) Using Economic Models…
Step 1: Explain concept in words
Step 2: Use numbers as examples
Step 3: Generate graphs from numbers
Step 4: Make generalizations using graph

5. What is the Production Possibilities Curve?
A production possibilities curve (PPC) is a model that shows alternative ways that an economy can use its scarce resources.
This model graphically demonstrates scarcity, opportunity costs, growth, and efficiency.
3 Key Assumptions
Only two goods can be produced
Everything produced is consumed
Fixed(or constant)Resources & Technology, (Ceteris Paribus)

6. Production “Possibilities” Tablef 14 12 9 5 2 4 6 8 10
TVs
Cell phones
Each point represents a specific combination of goods that can be produced given full employment of resources.
NOW GRAPH IT: Put TVs on y-axis and cell phones on x-axis

7. Production Possibilities
How does the PPG graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency? 14 12 10 8 6 4 2
Impossible/Unattainable
(given current resources) A B G C
TVs
Efficient D
Inefficient/ Unemployment E
Computers

8. Opportunity Cost Example: T V Cell phones
1. The opportunity cost of moving from a to b is…
2TVs
2.The opportunity cost of moving from b to d is…
7 TVs T V
3.The opportunity cost of moving from d to b is…
4 Cell phones
4.The opportunity cost of moving from f to c is…
0 Cell phones
5.What can you say about point G?
Unattainable
Cell phones

9. The Production Possibilities Curve (or Frontier)
Describe point A, B, C.
Describe point D: inefficient; wasted resources
Describe point E: unattainable given the current resources and technology

10. Productive Efficiency
Capital
goods B
120 C 90 F D 60 A
Describe efficient points, inefficient points and unattainable points A B C E 30 G
Consumer goods 7 14 21 28 39

11. Production Possibilities
A B C D E
Cupcakes
Muffins
List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.
Constant Opportunity Cost- Resources are easily adaptable for producing either good.
Result is a straight line PPC (not common)

12. Production Possibilities
A B C D E
PIZZA
Computers
List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.
Law of Increasing Opportunity Cost-
As you produce more of any good, the opportunity cost (forgone production of another good) will increase.
Why? Resources are NOT easily adaptable to producing both goods.
Result is a bowed out (Concave to the origin) PPC

13. Constant vs. Increasing Opportunity Cost
Identify which product would have a straight line PPC and which would be bowed out?
Corn
Cactus
Wheat
Pineapples

14. PER UNIT Opportunity Cost (PUOC)
= # Units Forgone
# Units Gained
How much each marginal unit costs
Example:
1. The PER UNIT opportunity cost of moving from a to b is…
1 Bike
2.The PER UNIT opportunity cost of moving from b to c is…
1.5 (3/2) Bikes
3.The PER UNIT opportunity cost of moving from c to d is…
2 Bikes
4.The PER UNIT opportunity cost of moving from d to e is…
2.5 (5/2) Bikes
NOTICE: Increasing Opportunity Costs

15. Shifting the Production Possibilities Curve

16. 3 Shifters of the PPC Production Possibilities
3 Key Assumptions Revisited
Only two goods can be produced
Everything produced is consumed
Fixed Resources & Tech (4 Factors)
What if there is a change?
3 Shifters of the PPC
1. Change in resource quantity or quality
2. Change in Technology

17. Production Possibilities
What happens if there is an increase in population?
Robots
Pizzas

18. Production Possibilities
What happens if there is an increase in population?
Robots
Pizzas 18

19. Production Possibilities
What if there is a technology improvement in pizza ovens
Robots
Pizzas 19

20. Production Possibilities
What if there is a technology improvement in pizza ovens
Robots
Pizzas 20

21. Capital Goods and Future Growth
Countries that produce more capital goods will have more growth in the future.
Panama – Favors Consumer Goods
Mexico – Favors Capital Goods
Current
PPC
Future
PPC
Future
PPC
Capital Goods
Current
PPC
Capital Goods
Consumer goods
Consumer goods
Panama
Mexico

22. These types of problems will be on the unit test next week!
Two practice problem sets:
One sheet is pretty easy, with two problems. Try it by yourself. If you can do it pretty easily, jump right into the second set of 4 practice problems.
If you need help with the first set, you may work with a partner. DO NOT begin the second set until you’re sure you know what you’re doing.
Ms. Roose will circulate and Ms. Tschudi-Rose will sit at the back table for help .
4 Practice Problems
You may work with 1partner only.
Make sure each of you understands why you answer as you do.
Ask if you don’t understand directions.
These types of problems will be
on the unit test next week!

23. PPC Practice Draw a PPC showing changes for each of the following:
Pizza and Robots (3)
1. New robot making technology
2. Decrease in the demand for pizza
3. Mad cow disease kills 85% of cows
Consumer goods and Capital Goods (4)
4. BP Oil Spill in the Gulf
5. Faster computer hardware
6. Many workers unemployed
7. Significant increases in education

24. STOP HERE. DO NOT print the following slides with copies of notes.
They are answers to go over the PPC assignment.

25. New robot making technology
Question #3a
New robot making technology Q
A shift only for Robots
Robots Q
Pizzas 25

26. The curve doesn’t shift! A change in demand doesn’t shift the curve
Question #3b
People want less pizza Q
The curve doesn’t shift!
A change in demand doesn’t shift the curve
Robots Q
Pizzas 26

27. Mad cow disease kills 85% of cows A shift inward only for Pizza
Question #3c
Mad cow disease kills 85% of cows
Cows make milk, which is used for cheese. So fewer cows means less resources for cheese; less cheese,therefore, less pizza. Q
A shift inward only for Pizza
Robots
ppc B
ppc A Q
Pizzas 27

28. Question # 4a Faster computer hardware Q
Computers are used in the production of both
consumer and capital goods.
Quality of a resource improves, shifting the curve outward
Consumer Goods Q
Capital Goods 28

29. Question #4b Many workers unemployed Q The curve doesn’t shift!
Unemployed workers are idle resources;
wasted; not used. Q
The curve doesn’t shift!
Unemployment is just a point inside the curve
Consumer Gods Q
Capital Goods 29

30. Question #4c Significant increases in education Q
Education increases human capital, the improvement
in the quality of resources.
The quality of labor is improved. Curve shifts outward.
Consumer Goods Q
Capital Goods 30