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

2. Georgia Performance Standard SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments. a) Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources. d) Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

3. Scarcity SCARCITY: a condition that exists when wants exceed the available resources – The central problem in economics, all things revolve around scarcity – As long as there is a want for something, it is scarce – 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

4. Scarcity A relative concept, not absolute In economics, scarcity also exists when something has more than one valuable use. Ex. Water (not plentiful) to thirsty person in desert is scarce.

5. Scarcity Water seems plentiful in large lake/river, but it’s still scarce because it has many mutually exclusive uses (irrigating, prod. Electricity, shipping lane, fish habitat, water recreation, etc.) Water, like many resources, can be abundant and scarce at the same time.

6. Hence, 2 definitions of scarcity Condition that exists because of unlimited wants and limited productive resources. A situation in which a resource has more than one valuable use.

7. Collaborative Pairs Scarcity Activity

8. Opportunity Costs

9. 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 Ms. Squires really wants BOTH goods: $200 $225

11. Opportunity Costs Examples She decides to spend her money on: What was the price she paid? What was his opportunity cost? $225

12. Opportunity Costs You have $100 to spend at the mall, rank the following in the order (1, 2, 3) you would purchase them. DVD Season of a TV Show($60) New outfit ($75) New pair of shoes ($65)

13. Factors of Production

14. GPS SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments. a) Define and give examples of productive resources (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship). b) List a variety of strategies for allocating scarce resources.

15. Factors of Production What went into making this?

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

17. 4 Categories of Productive Resources (Factors of Production) LAND LABOR CAPITAL ENTREPRENUERSHIP - Natural, renewable resources -wood, rubber, graphite, land, animals - Human resources, people -MENTAL and PHYSICAL - A produced good used in the production of another good -Machines, computers, buildings, etc -The person or group responsible for putting the other 3 together to produce something

18. Allocation of Productive Resources

19. How are Factors of Production Allocated? SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and government. – B List a variety of strategies for allocating scarce resources.

20. Allocation of Productive Resources How is it decided who gets which or how much of a resource? Read “Allocation Handout.” In groups, identify five methods of allocating productive resources and compare and contrast pros and cons of each method.

21. Methods of Allocating FOP By Force First come, first served Government Markets Appearance and personality

22. Performance Task Tie-In Decide on your product/service (or jot down several options) Create a 4 column chart that shows LAND LABOR CAPITAL ENTREPREN. Write several things in each column that you think you’ll need

23. Production Possibilities Curve (PPC)

24. GPS SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action. Illustrate by means of a production possibilities curve the trade offs between two options.

25. PPC a graph that shows the trade-off between two options Assume a country is ONLY producing the two goods on the graph When using ALL of their resources, they will produce on the line

26. PPC – an example 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 500300

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

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

29. PPC – an example 500 Pencils 300 Pens X At point X, the country or business is producing BELOW its possibilities. At point Y, the country or business is producing BEYOND its possibilities. Y

30. Graph this country’s PPC GOOD A GOOD B 2000 18025 15050 10075 25100 0110 After graphing, answer these questions: 1.Assume the country is currently producing 180 of good A and 25 of Good B. If the country wants to make 75 of Good B, how many of good A must they give up? 2.If the country was producing 150 of Good A and 30 of Good B, what could you conclude about the country’s economy?

31. Productivity and Investment

32. GPS Define productivity as the relationship of inputs to outputs.

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

34. Which business is MOST productive? # of Workers #of Tractors Wheat Harvested 200 25 2,000 bu. 50 2 650 bu. 100 5 1,250 bu. B1 B2 B3

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

36. Which business is MOST productive? Business 1 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

37. Which business is MOST productive? Business 2 Labor = $80 x 50 = $4,000 Tractors = $2,000 x 2 = $4,000 TOTAL INPUT = $8,000 Revenue = $15 x 650 = $9,750 TOTAL OUTPUT = $9,750 NET GAIN = $1,750

38. Which business is MOST productive? Business 3 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

39. To Summarize Business 1INPUT OUTPUT GAIN/LOSS 66,000 30,000 -36,000 Business 2INPUT OUTPUT GAIN/LOSS 8,000 9,750 1,750 Business 3INPUT OUTPUT GAIN/LOSS 18,000 18,750 750 Business ____ is MOST productive 2

40. Improving Productivity How can business 1 improve? – Increased Capital More factories, tools, machines, etc – Improve technology Faster machines, multi-tasking devices, machines with larger capacity Faster machines, multi-tasking devices – Train/educate workers Specialization, new techniques, ability to USE technology – Improve entrepreneurship Better organization of resources, motivational tools, leadership, worker morale

41. Let’s Practice Being Productive Let’s make Pizzas!

42. Economic Growth

43. GPS Give illustrations of investment in equipment and technology and explain their relationship to economic growth. Give examples of how investment in education can lead to a higher standard of living.

44. Economic Growth Economic growth can come in 2 ways: – 1) More output relative to more input – 2) The same output with LESS inputs 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?

45. 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

46. 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

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

48. Historic Examples Wheat Harvesting (Bushels in 1 hour) 1800 19002000.26.9625

49. Literacy Rates CountryLiteracy Rate Bahamas95.6% Australia99% Bolivia86% US99% Sudan61% GDP per capita $25,000 $36,300 $4,000 $48,500 $2,200

50. Rank these countries Country A: Argentina Population: 37,384,816 PerCapita GDP: $12,900 Literacy Rate: 96.2% Country D: Russia Population: 145,470,196 PerCapita GDP: $7,700 Literacy Rate: 98% Country B: Japan Population: 126,771,662 PerCapita GDP: $24,900 Literacy Rate: 99% Country E: Singapore Population: 4,300,419 PerCapita GDP: $26,500 Literacy Rate: 93.5% Country C: Nigeria Population: 126,635,626 PerCapita GDP: $950 Literacy Rate: 57.1%

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

53. 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

54. RATIONAL DECISION MAKING

55. Rational Decision Making Analyzing costs and benefits before making a decision Marginal thinking is key – What is the cost/benefit of my NEXT decision – Past decisions don’t matter – this affects PRODUCERS AND CONSUMERS A rational decision is made when the marginal benefit is greater than the marginal cost

56. Costs and Benefits For producers, this is simply measured in dollars – Costs of the inputs vs. the revenue For consumers, it is trickier – We measure benefits in terms of UTILITY – How “useful” is the item or service – We use “utils” as the measure for this

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

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

59. Another Example You purchased a ticket to see 10 minutes into the movie, you realize it is going to be horrible. DO YOU STAY OR LEAVE? Write down your answer and reason WHY.

60. RDM Example (cont’d) COSTBENEFIT STAY Lost opportunity to do next best thing See end of movie Can discuss movie with others LEAVE Can’t discuss with others Won’t see ending Can do next best thing which may bring more satisfaction

61. Another example A person opens a business making sandwiches. He’s purchased a store and all of the food products, now he wants to hire some people. He decides to hire two people to start with and pay them $50 a day. His costs/benefits sheet for a month looks like this:

62. Worker #CostProductionPrice/Sand 1$750250 sandwiches 5 2$750250 sandwiches 5 Rent/Food/Entrepreneurship = $750 1 Month Total Costs: 750+1500=2250 Total Output: 500 x 5 = 2500

63. Worker #CostProductionPrice/Sand 1$7502505 2$7502505 3$7502005 4$7501005 Rent - $250 Food - $250 Entrepreneurship - $250 1 Month Should he hire worker #3? Why? What about #4? Why?

64. What will be on the test? Scarcity – definition – examples Opportunity cost – definition – examples Production Possibilities Curve – What do they show? – interpret points (below, above, moving from one point to another) – DRAW ONE!!!! Factors of production – 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