1. True or False???? The best things in life are free.

2. Unit 1: Economics Introduction to Economics

3. Topic 1: Definition of Economics

4. Economics studies how scarce resources are used to fulfill society’s needs and wants

5. Scarcity

6. condition where wants are greater than resources *Because scarcity exists, choices must be made

7. Resources anything that helps produce a good or service (also called factors of production)

8. The Four Factors of Production Entrepreneurship Capital Labor Land Types of Resources 8

9. Land = natural resources (Water, Sun, Oil, Trees, Stone, etc.) The Four Factors of Production 9

10. 10 Labor = Workers (manual laborers, lawyers, doctors, teachers, waiters, etc.)

11. Capital: Resources that are used to create other goods (tools, tractors, machinery, buildings, factories, etc.) The Four Factors of Production 11

12. Entrepreneurship= Organizes other resources The Four Factors of Production Ultimate goal: Make profit 12

13. The Four Factors of Production You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door. Classify the Factors of Production in the following scenario:

14. The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

15. Resources are interdependent of one another Have to have all resources in order to make a product/service Resources

16. Needs Necessary for survival

17. Wants Not necessary for survival

18. In order for a product to have value, it must be scarce and provide utility (usefulness)

19. Conspicuous Consumption Purchase of items to impress others

20. Topic 2: principles of economics

21. 1. People Economize People make decisions based on what THEY think will benefit them the most

22. 2. All choices involve a cost Opportunity Cost – highest valued alternative given up when a choice is made There is no such thing as a free lunch: Nothing is FREE!!!!

23. Video clip “Dumpster Diving - extreme couponing”

24. 3.Incentives influence behavior

25. 4. Rules influence individual choices

26. 5.Voluntary trade creates wealth Video clip “trading up”

27. Answer the following questions the way an economist would

28. 1. Making a choice means: A. deciding among many possibilities B. being able to get everything C. not thinking about future consequences D. considering a daily horoscope

29. 2. People throughout the world usually make decisions: A. impulsively; choosing quickly without much thought B. generously; thinking of the needs of others C. randomly; leaving the outcome up to chance D. purposefully; considering costs and benefits

30. 3. Which of the following best explains the relationship between choices and incentives? A. incentives motivate people to make certain types of choices B. incentives rarely influence personal choices C. incentives make it difficult to predict what choice people will make D. incentives have nothing to do with choices

31. 4. A hungry economist decides to buy a bag of potato chips; which of the following would best explain his decision? A. the chips cost less than the other snacks B. the chips came in the largest bag C. the chips offer a greater benefit to him than the other snacks D. there are no other choices available

32. In Economics decisions are made at the MARGIN MARGINAL = additional

33. Stop Watch

34. Marginal Utility Additional usefulness of consuming ONE more product Diminishing Marginal Utility: As more is consumed the additional usefulness is LESS

35. Diminishing Marginal Utility Squidward - too many krabby patties When a person acquires more units of an item, ADDITIONAL UTILITY will go down

36. # of donuts consumed Total utilityMarginal utility 0-- 15 212 320 425 528

37. # of donuts consumed Total utilityMarginal utility 0-- 155 2127 3208 4255 5283 Increasing marginal utility occurred with donuts?? Diminishing marginal utility occurred with donuts??

38. A rational person will weigh the additional utility (MU) against the additional costs (MC) Marginal Cost: additional cost of consuming ONE more item

39. How can a person maximize their utility??? MU<MC = Don’t do it MU>MC = Do it MU=MC * Do it and STOP **utility maximized here

40. Assume it cost $10 to see each movie. Complete the chart below. # of moviesTotal utilityMarginal utility Total costMarginal cost 00 115 225 332 435

41. Assume it cost $10 to see each movie. Complete the chart below. # of moviesTotal utilityMarginal utility Total costMarginal cost 00- 115 22510 3327 4353

42. Assume it cost $10 to see each movie. Complete the chart below. # of moviesTotal utilityMarginal utility Total costMarginal cost 0000 115 10 2251020 332730 435340

43. Assume it cost $10 to see each movie. Complete the chart below. # of moviesTotal utilityMarginal utility Total costMarginal cost 00000 115 10 225102010 33273010 43534010 How many movies should be seen if a person wishes to maximize their utility???

44. Assume pizza cost $2.00 a slice. Complete the chart in your notes and determine the number of slices that will maximize utility

45. Pizza slices Total utility Marginal utility Total cost Marginal cost 00000 18822 214642 319562 423482 5252102 6261122 7260142 824-2162 How many pieces of pizza should you eat?????

46. Pizza slicesTotal utilityMarginal utility Total costMarginal cost 00000 18822 214642 319562 423482 5252102 6261122 7260142 824-2162

47. Calculate Marginal Utility # of Slices of Pizza Total Utility (in dollars) Marginal Utility/Benef it 000 188 2146 3195 4234 5252 6261 7 0 824-2 How many pizzas would you buy if the price per slice was $2? Marginal Cost 2 2 2 2 2 2 2 2 2 You will continue to consume until Marginal utility = Marginal Cost 47

48. Maximizing utility if choosing between 2 items Must calculate the Marginal utility per price of each item. “Bang for your Buck” Formula for calculating marginal utility per price: MU/Price Calculating MU/P allows you to compare products with different prices

49. Example: Where to go on vacation?? ? You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose? Destination Marginal Utility Price Tahiti3000$3,000 Chicago1000$500 MU/P 49

50. Example: Where to go on vacation?? ? You plan to take a vacation and want to maximize your utility. Based on the info below, which should you choose? Destination Marginal Utility Price Tahiti3000$3,000 Chicago1000$500 MU/P 3000/3000= 1 1000/500= 2 50

51. Topic 3 : Types of Economics

52. studies small specific segments of the economy Examples: profits at McDonalds Demand for gasoline microeconomics

53. studies the economy as a whole;would look at a country’s entire economy Example: poverty in the U.S. International Trade macroeconomics

54. Micro or Macro??? Ferris Beuller’s day off

55. Topic 4: ECONOMIC MODELS

56. 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, trade-offs, opportunity costs, and efficiency. 56

57. PPC Each point represents a specific combination of goods that can be produced given resources available. ABC boats974 trucks479

58. PPC 4 Key Assumptions Only two goods can be produced Full employment All resources are fully utilized Technology is fully utilized

59. PPC Point inside (D) = unemployment Point outside (E) = unattainable given current resources Points on curve (A,B,C) = efficient All resources being utilized Economy at full employment

60. 2 Bikes 2.The opportunity cost of moving from b to d is… 4.The opportunity cost of moving from d to c…. 2 computers 3.The opportunity cost of moving from d to b is… 7 Bikes 4 Computers 1. The opportunity cost of moving from a to b is… Example: PPC shows Opportunity Cost 60

62. PPC can show two different types of costs: constant and increasing Constant Cost: opportunity cost of moving from one point to the other is always the same Increasing cost: opportunity cost of moving from one point to the other gets bigger

63. calzones01234 pizza43210 Opportunity Cost of moving from a-b, b-c, c-d, and d-e? Constant opportunity cost: Opportunity cost is always the SAME ABC D E 63

64. Constant opportunity cost Resources are easily adaptable for producing either good Ex: pizza and calzones Results in a straight line PPC

65. PIZZA 20 19 16 10 0 ROBOTS012 34 Opportunity Cost of moving from a-b, b-c, c-d, and d-e? ABC D E Increasing opportunity cost: Opportunity costs increase as more of a good is produced

66. Increasing opportunity cost As you produce more of any good, the opportunity cost will increase Why??? Resources are NOT easily adaptable to producing both goods Results in a BOWED OUT PPC

67. Constant vs. Increasing Opportunity Cost Corn Wheat Cactus Pineapples Resources for corn and wheat are more easily adaptable to each other than resources for cactus and pineapples

68. Per Unit Opportunity Cost Per unit opportunity cost: Doesn’t look at total costs, looks at the cost of ONE more item 68 = Cost Gain Per Unit Opportunity Cost

69. Per Unit Opportunity Cost: Cost/Gain 1. Ron has resources to produce 20 pizzas or 200 burgers To make ONE pizza, John must give up _________ burgers To make ONE burger, John must give up ___________ pizza 2.John has resources to produce 100 pizzas or 200 burgers To make ONE pizza, John must give up __________ burgers To make ONE burger, John must give up ___________ pizza 69

70. 2/2 = 1 Bike 2.The PER UNIT opportunity cost of moving from b to c is… 4.The PER UNIT opportunity cost of moving from d to e is… 3.The PER UNIT opportunity cost of moving from c to d is… 3/2 Bikes 4/2 = 2 Bikes 5/2 Bikes = Cost Gain 1. The PER UNIT opportunity cost of moving from a to b is… Example: PER UNIT Opportunity Cost How much each marginal unit costs 70

71. Practice per unit Opportunity cost ABCDE Autos02468 missiles302721120 1.What is the per unit cost of moving from point D to point E? 12/2= 6 missiles 2.What is the per unit cost of moving from point C to point B? 2/6 = 1/3 autos 3.What is the per unit cost of moving from point C to point D? 9/2 missiles 4.What is the per unit cost of moving from point B to point A? 2/3 autos

72. Practice handout PPC (front page)

73. Shifting the Production Possibilities Curve 73

74. 4 Key Assumptions of PPC Only two goods can be produced Full employment Resources maximized Technology maximized 3 reasons the PPC will shift 1. Change in resource quantity or quality 2. Change in Technology 3. Change in Trade 74 Production Possibilities

75. Inward shift of PPC Indicates decrease in economy Happens due to: - destruction of resources - Less trade - Decline in quality of resources

76. Outward shift in PPC Indicates increase in economy (Economic growth) Happens due to: -increase in #/quality of resources - Technology - More Trade

77. 77 AB is original PPC… What happens??? 1. BP Oil Spill in the Gulf 2. Better technology in producing both items 3. Many workers unemployed 4. Significant increases in education 5. Full employment

78. Practice handout PPC (back page)

79. Topic 5: Economic Systems All societies must answer 3 economic questions 1. what will be produced 2. how will it be produced 3. who will get what *the way the questions are answered determine a country’s economic system

80. The Bead Game Stop Watch

81. Traditional economies economic questions answered by past 81

82. Command Economies economic questions answered by government (communism and socialism)

83. Video clip “command vs market”

84. Command Economies Advantages 1.Equal incomes means no extremely poor people 2.Capable of quick change Disadvantages 1.No incentive to work harder 2. No Competition = poor quality

85. Market Economy economic questions answered by people

86. Market Economies Advantages 1.Economic freedom 2.Competition = better quality goods 3.Incentive to make a profit Disadvantages 1.Unequal distribution of wealth 2.Economic loss

87. CONSUMER SOVEREIGNTY Consumer is ruler of the market Consumers determine which products are successful

88. The Invisible hand - Adam Smith The concept that society’s goals will be met as individuals seek their own self-interest. Example: Society wants fuel efficient cars… Profit seeking producers will make more. Competition between firms results in low prices, high quality, and greater efficiency. The government doesn’t need to get involved since the needs of society are automatically met. Competition and self-interest act as an invisible hand that regulates the free market.

89. The invisible hand: Adam Smith Video clip: “I, pencil” “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 self- interest.”

90. Mixed Economy elements of the all economic systems together (government and people answer economic questions)

91. Topic 6: Circular Flow of a market economy Shows the interdependence between business and households

92. 92 Product Market Resource Market Businesses Individuals Goods and Services $$$ spending $$$ $$$ Spending $$$ Goods and Services $$$ Income Resources $$$ Income $$$ Resources (Factors of Production)

93. The Circular Flow of a market economy The Product Market-The “place” where goods and services produced by businesses are sold to households. Households demand; Firms supply The Resource (Factor) Market-The “place” where resources (land, labor, capital) are sold to businesses. Firms demand, households supply 93

94. Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly TOPIC 7: MARKET STRUCTURES 94 Most competition least competition According to the demonstration which group Represented each structure????

95. Market competition demo 1. Each food item represents the SIZE of each firm with in the structure. 2. TYPES of items each group has?? 3. COMPETITION within group??

96. Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly TOPIC 7: MARKET STRUCTURES Imperfect Competition 96 Most competition least competition

97. Perfect Competition Number of firms: Many (thousands) of small firms Choice for Consumers: many Type of Good: identical products Market Entry: very easy, no barriers to entry Amount of competition: Great deal; more than any other structure

98. Perfect competition Example: Agricultural products

99. Monopolistic Competition

100. Characteristics of monopolistic competition Number of firms: hundreds of small companies Choice for consumers: many Type of Good: product DIFFERENTIATION Market Entry: easy, little barriers to entry Amount of competition: a lot; non-price competition

101. Examples: monopolistic competition Retail stores Restaurants Pizza

102. Oligopoly Number of firms: Few large companies Choice for Consumers: Few Type of Good: similar or different Market entry: difficult to enter; barriers exist Amount of Competition: LITTLE One firm’s actions have impact on other firms Brand name recognition important

103. Examples: Oligopoly Soft drinks Cereal Athletic apparel

104. Example of how one firm in oligopoly impacts another “I love Lucy” clip

105. 105 Monopoly Number of firms: Single Seller Choice for consumers: ONE Type of Good: unique; no substitutes Amount of Competition: none (usually illegal because of this) Market Entry: Impossible

106. Example: Monopoly Utility companies

107. ID the market structure Business 1: I ’ ve got plenty of competition. If I tried to raise my price, I ’ d lose business to the large firms that dominate our industry. I wait for them to raise prices and I follow along behind.

108. Business 2: New shops like mine are opening all the time – there are hundreds of us. I have to spend money on advertising to convince people that my shop is unique and different.

109. Business 3: I can ’ t afford to advertise; it would eat up what little profit I make. Besides, what good would it do? My product is the same as everyone else ’ s.

110. Business 4: My product is like no one else ’ s. I work hard to make sure my firm stays out in front to avoid cutthroat competition.