1. [ 1.1 ] Scarcity

2. Scarcity
“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.
The first lesson of politics is to disregard the first lesson of economics”. --Thomas Sowell 2

3. You cannot have everything you want. Therefore: CHOICES must be made
wants
resources
Unlimited ____________ vs. Limited _______________
Services
Goods
Factors of Production
You cannot have everything you want. Therefore: CHOICES must be made

4. What satisfies economic wants?
Goods
Are tangible items that satisfy our wants.
Such as: cars, TVs, computers, clothes, etc.
Consumer Goods
Are goods for immediate consumption that satisfy our wants directly.
Examples?
Are goods that satisfy our wants
indirectly; goods used to produce
other goods. Examples?
Capital Goods

5. What else satisfies our wants?
Services
Intangible items such as:
Legal advice/representation
Medical and dental work
Tax preparation
Painting and repair work
House cleaning

6. Scarcity Means Making Choices
Analyze Maps Germany faces a scarcity of what resource? What might be a possible cause of that scarcity?

7. All Resources Are Scarce
All goods and services are scarce because the resources used to produce them are scarce.

8. Resources a.k.a. The Factors of Production
Economists classify resources into 4 categories
Land
Natural resources, acreage, ports, oil, minerals, rivers
- coal, oil, water, fossil fuels, etc.
- vegetation and water
– sun, wind, and rain
Labor
Human resources (physical and intellectual)

9. 3. Capital (a product of Investment)
Physical- All manufactured goods & services used in producing consumer goods. Examples: Tools, machinery, equipment, trucks to carry goods, airplanes, etc.
Human- training and education
Real (can produce something directly)
Financial (money, stocks, bonds)

10. decide how to combine resources to create new goods and services.
Entrepreneurs Use Factors of Production
decide how to combine resources to create new goods and services.
Anyone who opens a business, large or small, is an entrepreneur.
willing to take risks.
develop new ideas, start businesses, and, if they are successful, even create new industries.
By producing new goods and services and hiring workers, they fuel economic growth.

11. Entrepreneurs Use Factors of Production
Entrepreneurs combine the three factors of production to produce goods and services.

12. Entrepreneurs Use Factors of Production
Education and training increase human capital. Employers, workers, and consumers benefit when job training improves productivity.

13. Quiz: Scarcity Means Making Choices
What is the term used to describe a temporary low supply of a good or service?
A. need
B. scarcity
C. shortage
D. want

14. Quiz: Entrepreneurs Use Factors of Production
Someone taking a course in Web design is affecting what factor of production?
A. entrepreneurship
B. human capital
C. land
D. physical capital

15. Quiz: All Resources Are Scarce
Which of these would be an alternative use for farmland?
A. an amusement park
B. farm machinery
C. skilled labor
D. cash

16. [ 1.2 ] Opportunity Cost and Trade-Offs

17. Suddenly, your phone rings, and a friend invites you to a party.
Making Decisions
You are cleaning your bedroom. Boxes, clothes, and other items cover your bed, the floor, the entire room.
Suddenly, your phone rings, and a friend invites you to a party.
You consider your options and quickly decide that going to the party will be more fun than cleaning your room.

18. Making Decisions Vs. Individual Decisions- your decisions
Business Decisions- resource use
Government Decisions- allocation of resources (guns v. butter)
Vs.

19. Opportunity Cost
In most trade-off situations, one of the rejected alternatives is more desirable than the rest. The most desirable alternative somebody gives up as the result of a decision is the opportunity cost.

20. Opportunity Cost
Once a resource or factor of production has been put to productive use an opportunity cost is incurred. (if you choose one, you give up another)
Opportunity cost is the next best alternative use for a resource.
Ex. If the 3 cups of flour are used to bake bread, then the opportunity cost is the cake that could also have been baked with the 3 cups of flour.
No matter what we do with our time or resources, we always incur opportunity cost. (price and everything else that must be given up)

21. When a small amount of the good is produced, opp
When a small amount of the good is produced, opp. cost is low because society needs to use only those resources that are especially suited for its production

22. Opportunity Cost
Using a Decision-Making Grid
Making the Decision

23. Is there a more efficient way to
Assume that Matt and Kyle each have a yard to rake/bag leaves and a 10 page term paper to type. If it takes Matt 2 hours to rake/bag a lawn and 4 hours to type a paper and it takes Kyle 4 hours to rake/bag a lawn and 2 hours to type a paper, how long would it take each guy to complete both tasks?
Problem A
6 hours
Is there a more efficient way to
accomplish both tasks?
Explain why?
Yes. Matt rakes/bags both lawns and Kyle types both papers. It would take each one 4 hours.

24. Opportunity Cost
Like many important choices, the decision to go to college involves trade-offs. As college costs have become more expensive, those trade-offs have become harder for many students.

25. Opportunity Cost
Analyze Charts What would you do if you were Karen? Why?

26. Cost-benefit analysis… If we were given $100 as a class, what could we do with it?
Will this cost us less than $100?
Is this the smartest way to spend our money?
Are we willing to give up all other options to spend our money this way?
Is our purchase durable or short term?
Use once or use multiple times?
Will the teacher/principal approve of this use of our money?

27. Thinking at the Margin
Many decisions involve adding or subtracting one unit, such as one hour or one dollar.
From an economist’s point of view, when you decide how much more or less to do, you are thinking at the margin.

28. Thinking at the Margin
Businesses analyze their marginal costs when making decisions about production. As long as the marginal benefit is greater than the marginal cost, this manufacturer will produce more toys.

29. Thinking at the Margin
Karen decides to wake up two hours earlier to study with the expectation of raising her grade to a B. Analyze Charts Do you agree with that decision? Why or why not?

30. Marginal Analysis
Marginal benefit – the benefit derived from producing an additional unit(s) of product
Marginal cost – the cost derived from producing an additional unit(s) of product
Produce as long as MB MC to maximize satisfaction of wants. =
If MC >MB, production has exceeded society’s desire for the good (allocative inefficiency – overallocation of resources)
If MC < MB, underallocation of resources exists.

31. Quiz: Making Decisions
Why do individuals, businesses, and governments make trade-offs?
A. to make more money
B. because resources are limited
C. because large groups of people cannot easily make decisions
D. to promote their values

32. Quiz: Opportunity Cost
Which statement best describes opportunity cost?
A. Opportunity cost is the value in dollars of a trade-off.
B. Opportunity cost is the best choice in a decision.
C. Opportunity cost is the best alternative decision.
D. Opportunity cost is all the alternatives not chosen in a decision.

33. Quiz: Thinking at the Margin
In which of these situations would a manufacturer decide to produce more units?
A. The marginal cost is greater than the marginal benefit.
B. The marginal cost is less than the marginal benefit.
C. The marginal benefit is less than the marginal cost.
D. The marginal benefit is equal to the marginal cost.

34. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
-Adam Smith