1. UNIT 2: The Choice is Yours!
Basic economic concepts, choices, rational decision making, investment in education/training, etc

2. Scarcity 2

3. Scarcity
SCARCITY: a condition that exists when UNLIMITED needs/wants exceed the LIMITED available resources
The central problem in economics, all things revolve around scarcity
Must be a want/need for the item and a limited amount
There are DEGREES of scarcity
If there is a lot of something that no one wants, it is less scarce than something MANY people want 3

4. Factors of Production (Productive Resources)4

5. Factors of Production
Write down everything you can think of that would be needed to make a pencil like this. 5

6. What went into this? Rubber (from Malaysia) machines metal
Someone who put all of this together.
wood
graphite 6

7. 4 Categories of Productive Resources (Factors of Production)
LAND LABOR
CAPITAL ENTREPRENUERSHIP
Natural resources
wood, rubber, graphite, land, animals
Human resources, people
Mental and physical
Can be called HUMAN capital
The person or group responsible for putting the other 3 together to produce something
Motivated by profit to take a risk
A produced good used in the production of another good
Machines, computers, buildings, etc
NOT MONEY!!!!!!!!!!!!!!!!! 7

8. Opportunity Costs

9. Opportunity Costs
OPPORTUNITY COSTS: the value of the NEXT BEST alternative given up when a choice is made
NEXT BEST is key, the cost is not everything you give up
Opportunity cost is not always money

10. Opportunity Costs Examples
Mr. Cannon really wants to BOTH:
$3,500
$1,500

11. Opportunity Costs Examples
He decides to spend his money on:
$3,500
What was the price he paid?
What was his opportunity cost?

12. Opportunity Costs DVD set of a TV Show($60) New outfit ($85)
You have $100 to spend at the mall, rank the following in the order (1, 2, 3) you would purchase them.
DVD set of a TV Show($60)
New outfit ($85)
New pair of shoes ($65)

13. Production Possibilities Curve (PPC)

14. PPC a graph that shows the trade-off between two production options
Cell Phones
PPC
Microwaves
a graph that shows the trade-off between two production options
A visual representation of OPPORTUNITY COSTS
2 Assumptions:
The company/country is ONLY producing the two goods on the graph
The company/country desires to use ALL of their resources

15. PPC – an example 500 300 Suppose a country makes Pencils and Pens.
If they devoted ALL of their resources to pencils, they could make 500 a day
…..to pens, they could make 300 a day
500
300

16. PPC – an example
The country/business can produce anywhere on the line when they use ALL of their resources
500
Pencils
Pens
300

17. PPC – an example
If the country is producing ONLY pencils, and they want pens, they have to give up pencils.
500
450
Pencils
The more pens they want…..
200
Pens
125
200
300

19. PPC – an example Y
At point X, the country or business is producing below its possibilities and is INEFFICIENT
500
Pencils X
At point Y, the country or business is producing beyond its possibilities and is NON-SUSTAINABLE.
200
Pens 75
300

20. Economic Growth Not 1 magical thing, combination of several factors
Capital Goods
Consumer Goods
Not 1 magical thing, combination of several factors
Increasing overall productivity is key

21. Productivity and Economic Growth

22. Productivity
We measure productivity as the relationship of inputs to outputs
For a business it’s the cost of all their resources compared to their revenue
For a country it’s the cost of all of their resources as compared to their GROSS DOMESTIC PRODUCT (GDP)

23. Which business is MOST productive?
# of Workers #of Tractors Wheat Harvested
,000bales
bales
,250bales B1 B2 B3 23

24. Which business is MOST productive?
Assume labor is $80/person
Each Tractor is $2,000
A bale of Wheat sells for $15 24

25. Which business is MOST productive?
Labor = $80 x 200 = $16,000
Tractors = $2000 x 25 = $50,000
TOTAL INPUT = $66,000
Revenue = $15 x 2,000 = $30,000
TOTAL OUTPUT = $30,000
NET LOSS = $36,000 25

26. Which business is MOST productive?
Labor = $80 x 50 = $4,000
Tractors = $2,000 x 2 = $4,000
TOTAL INPUT = $8,000
Revenue = $15 x 550 = $8,250
TOTAL OUTPUT = $8,250
NET GAIN = $250 26

27. Which business is MOST productive?
Labor = $80 x 100 = $8,000
Tractors = $2,000 x 5 = $10,000
TOTAL INPUT = $18,000
Revenue = $15 x 1,250 = $18,750
TOTAL OUTPUT = $18,750
NET GAIN = $750 27

28. To Summarize 18,000 18,750 750 Business 1 INPUT OUTPUT GAIN/LOSS
66, , ,000
Business 2 INPUT OUTPUT GAIN/LOSS
8, ,
Business 3 INPUT OUTPUT GAIN/LOSS
18, ,
Business ____ is MOST productive 3 28

29. Improving Productivity
INVEST IN EDUCATION/TRAINING
Train/educate workers
Specialization, new techniques, ability to USE technology
Improve entrepreneurship
Better organization of resources, motivational tools, leadership, worker morale
INVEST IN CAPITAL & TECHNOLOGY
More factories, tools, machines, etc
Faster machines, multi-tasking devices, machines with larger capacity 29

30. Historic examples Cotton Gin in America
Before Cotton Gin: 1 man = 1 pound of clean cotton
After Cotton Gin: 1 man = 50 pounds of clean cotton

31. Historic examples Assembly Line
Before AL: .08 car frame in an hour (1913)
After AL: .67 car frame in an hour (1914)

32. Wheat Harvesting (Bushels in 1 hour)
Historic Examples
Wheat Harvesting (Bushels in 1 hour)

33. Economic Growth
For countries, we look at economic growth in terms of GROSS DOMESTIC PRODUCT (GDP) and GDP PER CAPITA
GDP = dollar amount of all goods and services produced in an economy
GDP Per Capita = GDP divided by the population
What makes an economy grow?

34. Literacy Rates Country Literacy Rate Bahamas 95.6% Australia 99%
Bolivia
86% US
Sudan
61%
GDP per capita
$25,000
$36,300
$4,000
$48,500
$2,200

36. Factors Affecting Economic Growth
High Investment in physical and human capital
Greater economic freedom
lower taxes, fewer regulations, protecting property rights
Strong Incentives to Save
Competitive Markets
Political Stability
Free Trade

37. Economic Growth Not 1 magical thing, combination of several factors
Capital Goods
Consumer Goods
Not 1 magical thing, combination of several factors
Increasing overall productivity is key

38. RATIONAL DECISION MAKING

39. Rational Decision Making
Analyzing costs and benefits before making a decision
MARGINAL thinking is key
What is the cost/benefit of my NEXT decision
Marginal means “additional”, NOT total
Past decisions don’t matter
this affects PRODUCERS AND CONSUMERS
A rational decision is made when the marginal benefit is equal to or greater than the marginal cost

40. Example: Mr. J’s Petting Zoo
To start his Zoo, Mr. J rents a piece of land with a fence for $100 a month. This cost remains the same no matter what.
He gets one animal donated from a local animal shelter. Food for one animal costs $50 a month.
With this animal he gets 200 visitors who pay $1 each to visit his zoo.

41. Example: Mr. J’s Petting Zoo
After the first month, Mr. J’s cost/benefit table looks like this:
# of animals
Fixed cost
Marginal Cost
Total Revenue
Marginal Revenue
(Marginal Benefit)
$100 $0 1
$50
$200
Should Mr. J buy the first animal?
Yes, because his marginal benefit is greater than his marginal cost.

42. Example: Mr. J’s Petting Zoo
After the first month, all Mr. J has to compare is the marginal cost of additional animals to the marginal revenue.
A 2nd animal will costs another $50.
But will bring in another 100 people.
# of animals
Marginal Cost
Marginal Revenue
(Marginal Benefit) 1
$50
$200 2
$100 3
$75
A 3rd animal will cost $50.
But will bring in 75 more people.

43. Example: Mr. J’s Petting Zoo
How many animals should he get?
# of animals
Marginal Cost
Marginal Revenue
(Marginal Benefit) $0 1
$50
$200 2
$100 3
$75 4
$65 5
$55 6
$48 7
$35

44. Example: Mr. J’s Petting Zoo
How many animals should he get?
# of animals
Marginal Cost
Marginal Revenue
(Marginal Benefit)
TOTAL Cost
Total
REVENUE
Profit $0
100
-100 1
$50
$200
150
200 50 2
$100
300 3
$75
250
375
125 4
$65
440
140 5
$55
350
495
145 6
$48
400
543
143 7
$35
450
578
128

45. Minutes spent studying
Another example
Minutes spent studying
Grade on Test 60 30 68 45 78 90 93
120 89
150 80
This student is deciding whether or not she should study more. Assuming she has been studying for 30 minutes and needs an A to pass the class, what would you tell her and why?

46. How many pieces do you eat? Consider the following chart:
Example
How many pieces do you eat?
Consider the following chart:
Slices of Pizza
Costs
Benefits 1 2 3 4 5
$8.00
10 utils $0
8 utils $0
3 utils $0
1 util $0
-1 util

47. What about at the mall? How does this change your thinking? $1.99
Slices of Pizza
Costs
Benefits 1 2 3 4 5
$1.99
10 utils
$1.99
8 utils
$1.99
3 utils
$1.99
1 util
$1.99
-1 util

48. What will be on the test? Factors of production Scarcity
Define them
Pick them from an example
Productivity/Growth
What causes it
How do we measure it
Rational Decision Making/Marginal Analysis
What is marginal
When do stop/start doing something
Scarcity
definition
examples
Opportunity cost
Production Possibilities Curve
What do they show?
interpret points (below, above, moving from one point to another)
DRAW ONE!!!!