2. What is Economics? Define Economics and the importance of making choices Define Economics and the importance of making choices Compare Scarcity and shortage Compare Scarcity and shortage Identify key terms: land, labor and capital. Identify key terms: land, labor and capital. The role of entrepreneurs The role of entrepreneurs CH 1.1

3. What is Economics? Economics is the study of how people seek to satisfy their needs and wants by making choices. Economics is the study of how people seek to satisfy their needs and wants by making choices. Or how people look to fill their unlimited wants with limited resources. Or how people look to fill their unlimited wants with limited resources. Need: Air, food, shelter, i.e. things necessary for survival Need: Air, food, shelter, i.e. things necessary for survival Want: Something desired but not necessary for survival Want: Something desired but not necessary for survival

4. Goods - physical objects Goods - physical objects Services - Actions or activities that someone performs for another Services - Actions or activities that someone performs for another While our wants may be unlimited, there are only so many resources available to us and to create goods and services. While our wants may be unlimited, there are only so many resources available to us and to create goods and services.

5. Shortages come and go, but scarcity always exists….Why? Shortages come and go, but scarcity always exists….Why? Goods and services are made from resources that are scarce Goods and services are made from resources that are scarce Scarcity implies limited quantities of resources to meet unlimited wants. Scarcity implies limited quantities of resources to meet unlimited wants. Sooner or later a limit is always reached Sooner or later a limit is always reached Scarcity and shortage are not the same thing Scarcity and shortage are not the same thing

6. Shortage: Producers cannot or will not offer goods or services at current prices Shortage: Producers cannot or will not offer goods or services at current prices Can be short term or long term What could cause a shortage? Factors of Production Factors of Production Resources that are used to make all goods and services. Resources that are used to make all goods and services. Land Land Labor Labor Capital Capital

7. Land Land All natural resources that are used to produce goods and services. All natural resources that are used to produce goods and services. Materials found in nature Materials found in nature Fertile land for farming Fertile land for farming Products in or on the land Products in or on the land Coal, water, forests, etc Coal, water, forests, etc Labor Labor Effort that a person devotes to a task for which that person is paid Effort that a person devotes to a task for which that person is paid Anything you do and get paid for it

8. Capital Capital Any human made resource that is used to produce other goods and services. Two types: Any human made resource that is used to produce other goods and services. Two types: Physical Capital (capital goods) - buildings and tools Physical Capital (capital goods) - buildings and tools Saves time and money Saves time and money Increases productivity Increases productivity Other benefits Other benefits Extra time Extra time More knowledge More knowledge Time to do other things Time to do other things

9. Human Capital Human Capital The knowledge and skills that a person acquires through education and experience The knowledge and skills that a person acquires through education and experience Economies require both human and physical capital to produce goods and services Economies require both human and physical capital to produce goods and services

10. Entrepreneur Entrepreneur Ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services Ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services They take risks and develop new ideas, start new businesses, create new industries and fuel economic growth They take risks and develop new ideas, start new businesses, create new industries and fuel economic growth Could be anyone Could be anyone

11. Opportunity Cost Why is every decision a trade off? Why is every decision a trade off? Identify the trade offs and opportunity costs using a decision making grid Identify the trade offs and opportunity costs using a decision making grid How do people make decisions by thinking on margin How do people make decisions by thinking on margin CH 1.2

12. Trade offs Everyone makes decisions that involve trade offs Everyone makes decisions that involve trade offs All the alternatives we give up whenever we choose one course of action instead of another All the alternatives we give up whenever we choose one course of action instead of another Trade offs in business How businesses choose to use land, labor, and capital resources

13. Guns or Butter Guns or Butter If a country decides to use more resources to make military items, it has less resources available to make consumer goods and vice versa If a country decides to use more resources to make military items, it has less resources available to make consumer goods and vice versa Why?….Resources are limited Why?….Resources are limited

14. Trade offs in business If a farmer decides to grow broccoli, there is no land available to grow corn If a farmer decides to grow broccoli, there is no land available to grow corn If a carpenter specializes in chairs, there is no wood to build tables If a carpenter specializes in chairs, there is no wood to build tables

15. Opportunity Costs are the most desirable alternatives given up when a decision is made Opportunity Costs are the most desirable alternatives given up when a decision is made More guns, less butter. Butter is the opportunity cost More guns, less butter. Butter is the opportunity cost

16. Decision Making Grids Alternatives Benefits Decision Opportunity Cost Benefits Forgone

17. Thinking at the margin: instead of thinking about a decision as a whole, think about it in terms of units. Thinking at the margin: instead of thinking about a decision as a whole, think about it in terms of units. Study time: 1 hour of studying = C = 1 less hour of sleep. 2 hours = B = 2 less hours, 3 hours = B+ = 3 less hours. Study time: 1 hour of studying = C = 1 less hour of sleep. 2 hours = B = 2 less hours, 3 hours = B+ = 3 less hours. Improvement between 2 and three hours is not enough to sacrifice the extra hour of sleep. Improvement between 2 and three hours is not enough to sacrifice the extra hour of sleep. Cost does not equal the benefit. Take the B Cost does not equal the benefit. Take the B Once the costs outweigh the benefits, no more units should be added. Once the costs outweigh the benefits, no more units should be added. 1 Hour of studying C Lose 1 hour of sleep 2 hours of studying B Lose two hours of sleep 3 hours of studying B+ Lose three hours of sleep