1. Unit 1: Foundations of Economics https://youtu.be/3ez10ADR_gM

2. What is Economics?
“A science that deals with the allocation, or use, of scarce resources for the purpose of fulfilling society’s needs and wants.” – Addison-Wesley

3. OBJECTIVES 1.1
EXPLAIN why scarcity and choice are basic problems of economics
IDENTIFY land, labor, and capital as the three factors of production, and identify the two types of capital
EXPLAIN the role of entrepreneurs
EXPLAIN why economists say all resources are scarce

4. What is Economics? So then the big two concepts are that:
Resources are scarce!
Society has unlimited needs and wants!
Economics decides the “best” way of providing one to the other

5. Scarcity
Definition
A situation in which the amount of something actually available would not be sufficient to satisfy the desire for it, if it were provided free of charge.

6. Factors of Production
There are 4 factors that must all be used to produce anything
Natural Resources (also referred to as “land”)

7. Factors of Production
There are 4 factors that must all be used to produce anything
Labor – effort of a person for which they are paid

8. Factors of Production
There are 4 factors that must all be used to produce anything
Capital – human-made resources used to create other goods

9. Factors of Production 2 Kinds of Capital
Physical Capital – Also called Capital Goods, objects that are used to produce other goods

10. Factors of Production 2 Kinds of Capital
Human Capital – knowledge or skills workers get from education and experience

11. Factors of Production
There are 4 factors that must all be used to produce anything
Entrepreneurship – person who takes a risk in combining the other 3 factors to create a new good

12. 1.1 QUIZ – get a partner!
1. Which of the following are factors of production?
a. Capital and Land
b. Scarcity and shortages
c. Technology and productivity
d. economics and business decisions

13. Answer is …
a. capital and land

14. Next question …
2. Which of the following is an example of using physical capital to save time and money?
a. hiring more workers to do a job?
b. building extra space in a factory to simplify production
c. switching from oil to coal to make production cheaper
d. lowering workers’ wages to increase profits

15. Answer is …
b. building extra space in a factory to simplify production

16. next question …
3. To what part of an industry does a worker’s education contribute?
a. technology
b. physical capital
c. human capital
d. scarce resources

17. Answer is …
c. human capital

18. next question … 4. Which of the following is an entrepreneur?
a. a person who earns a lot of money as a singer or dancer
b. a person who creates a game and sells it to a game manufacturer
c. a person who starts an all-organic cleaning supplies business that employs others
d. a person who works as a highly paid computer programmer

19. Answer is …
c. a person who starts an all-organic cleaning supplies business that employs others

20. Next … 5. What is the difference between a shortage and scarcity?
a. A shortage can be temporary or long-term, but scarcity always exists.
b. A shortage results from rising prices; scarcity results from falling prices.
c. A shortage is a lack of all goods and services; scarcity concerns a single item.
d. There is no real difference between a shortage and scarcity

21. answer …
a. A shortage can be temporary or long-term, but scarcity always exists!

22. next…. 6. What does an economist mean by the term LAND?
a. farmland only
b. food crops grown on farmland as well as the farmland itself
c. goods and services that are produced form the land
d. all natural resources used to produce goods and services

23. answer …
d. all natural resources used to produce goods and services!

24. Survival Activity You will be working in groups of 3-4.
Arrange the desks so that your group is separate from the other groups in the room.
Assign roles in your group.
Let’s get started!

25. Step 1 Review the island’s environment and equipment that remains.
You have 10 minutes to figure out how you will survive.
Be prepared to share your survival plan with the class.

26. Thinking further… What did you make to eat or for shelter?
How did you make it?
Who made it?
What natural resources were used?
What tools were used?
Did everyone get a share of what was produced?
Did the goods go only to those who helped to produce them?
Did a leader decide who got what?
Did those who did not work get any of the goods produced?

27. Allocation (use) of Resources
Because there is never enough to satisfy everyone, there has to be some way of allocating all resources, and the goods and services they produce.
Allocating requires rules and those rules determine the type of competition that takes place.
Even no rules will quickly become a rule—the rule of force where desirable things are acquired by the meanest and strongest who simply take what they want from others.

28. Five common methods include the following:
Rule of force
First come-first serve
Government
Markets
Appearance and personality

29. Rule of Force
Important function of government is to outlaw the rule of force
Needs to be replaced by better rules
Competition through force remains common between governments in the form of wars.
Rule of force is costly to society
it motivates destructive competition
discourages productive competition

30. First Come-First Serve
This rule causes people to compete by waiting in line, with the competition favoring those who wait the longest.
Does not motivate destructive competition, but neither does it motivate productive cooperation that can make everyone better off.
Waiting in line does nothing to get people to work together to produce more of what people are waiting for, or more of anything else of value.

31. Government
A way of making sure that things go to those who most deserve them instead of to those best able to compete
Method doesn't eliminate competition; they just change the type of competition that takes place.
The more wealth government allocates, the more money people will spend contributing to political campaigns, hiring lawyers and lobbyists to influence the decisions of politicians.

32. Markets
Firms compete for more customers and higher profits, workers compete for better jobs and larger incomes, and consumers compete by being willing to pay more for the products they value most.

33. Appearance & Personality
People want to be popular, have good friends, get invited to parties, and get dates for Saturday night, and they will compete for these things by making efforts to improve their appearances and personalities.
This competition is certainly productive because it results in people being more pleasant to be around. But it doesn’t motivate the development of skills and efforts that produce more general goods and services, as market competition does.

34. FIVE appealing VACATION Destinations…
Opportunity Cost
FIVE appealing VACATION Destinations…
Hawaii
Paris
Dunns River Falls, Jamaica
List your choices of vacation in your notebook #’s 1-5.
Ireland
Alaska

35. Making Economic Decisions
Every decision we make involves trade-offs – alternatives that we must give up when we make a choice

36. Making Economic Decisions
The most desirable of the options you pass up is called the Opportunity Cost
Rank sleep, studying, and playing video games 1st, 2nd, and 3rd on a list for what you value the most

37. Making Economic Decisions
1st Place is what you would choose to do
2nd Place is your opportunity cost (you give it up to do option 1)

38. Making Economic Decisions
What other option do you have other than using 3 hours for one task?
You could split your time among multiple activities!
Thinking at the Margin – decision involving adding one unit and subtracting one unit, rather than all or nothing

39. Making Economic Decisions
Options
Benefit
Opportunity Cost
0 hours studying, 3 hours sleeping
F on Test
None
1 hours studying, 2 hours sleeping
C on Test
1 hour of sleep
2 hours studying, 1 hour sleeping
B on Test
2 hours of sleep
3 hours studying
B+ on Test
3 hours of sleep

40. Making Economic Decisions
There is a point at which you are paying the same increase in cost, but seeing lower benefits
You must make the decision as to whether the cost is worth it
This same process is used by businesses and consumers to make decisions

41. Section 1.3 – Production Possibilities Curves
GRAPHS….
WHY do graphs sometimes show information more clearly than text or tables?

42. Production Possibilities

43. Production Possibilities
Production Possibilities Graph – shows alternatives to what an economy can produce
The outer red line shows the maximum possible output with any given combination
This is the Production Possibilities Frontier (or Curve)

44. Production Possibilities
To move from one point to another, the economy must make trade-offs

45. Production Possibilities
Any point along the line shows the economy operating at maximum efficiency
Any point below the line is underutilization – they are not getting all that they could
Any point above the line is presently impossible, until new resources are available

46. Production Possibilities
Production Possibilities Graph – shows alternatives to what an economy can produce
Let’s say we can produce 2 things: Guns and Butter

47. Production Possibilities
Why does the graph curve instead of making a straight line?
Law of Increasing Costs – as production increases for one item, more and more resources are necessary to increase production of the second item! The OPPORTUNITY COST increases…

48. Production Possibilities
Every resource is best suited for certain types of goods
Farmland and cows make butter
Metals and factories make guns and many times you hear about butter vs. guns due to military spending on weaponry using resources …
To convert butter production to guns, you must sell the cows and build new factories on the land

49. QUIZ time .. grab a partner!
1. The economic concept of guns or butter means that …
a. a person can spend extra money either on sports equipment or food.
b. a company must decide whether to manufacture guns or butter
c. a government must decide whether to produce more or less military or consumer goods
d. a government can buy unlimited military and civilian goods if it is rich enough

50. answer …
c. a government must decide whether to produce more or less military or consumer goods … trade off …. due to scarcity!

51. next..
2. If a person who wants to buy a compact disc (CD) has just enough money to buy one, and chooses CD A instead of CD B, then CD B is the
a. trade-off
b. opportunity cost
c. decision at the margin
d. opportunity at the margin

52. answer is …
b. opportunity cost

53. next… 3. A decision-making grid is a visual way of:
a. examining opportunity costs
b. selling goods or services
c. making marginal decisions
d. identifying shortages

54. answer is ..
a. examining opportunity costs!

55. next …
4. A decision is made at the margin when each alternative considers
a. a different trade-off than the others
b. where the most costly alternative will be.
c. what the “all or nothing” alternative will be.
d. cost and benefit ranked in progressive units.

56. answer …
c. d. cost and benefit ranked in progressive units

57. quiz time  Number your paper 1 – 4
1. A production possibilities curve shows the relationship between the production of:
a. farm goods and factory goods
b. two types of farm goods
c. two types of factory goods
d. any two categories of goods

58. answer
d. any two categories of goods.

59. next …
2. The line on a production possibilities curve showing the relative amounts of two types of goods produced using all resources is called the
a. production possibilities frontier
b. opportunity cost line
c. utilization of resources
d. maximum possible production line

60. answer …
a. production possibilities frontier

61. question …
3. The law of increasing costs means that as production shifts from one item to another,
a. the cost of production gets cheaper and cheaper.
b. the cost of producing an item stays the same no matter how many are produced.
c. more and more resources are necessary to increase production of the second item
d. the land costs of increasing production rise much more steeply than do the labor costs

62. answer is …
c. more and more resources are necessary to increase production of the second item

63. and last question …
4. The curve usually seen in a production possibilities frontier can be explained by:
a. growth in the economy
b. underutilization of resources
c. increasing an economy’s efficiency
d. the law of increasing costs

64. final answer is …
d. the law of increasing costs!

65. An economy that is efficient is …
producing the maximum amount of goods and services .. now that’s efficient!