1. Introduction to Economics Johnstown High School Mr. Cox Production

2. Introduction to Production When thinking about Supply and Demand, a critical component that must be understood is the costs and operations behind producing goods. Inputs – resources; materials needed to produce an.. Output - quantity of goods or services produced in a given time period, by a firm, industry, or country (i.e. finished goods)

3. Resources – Factors of Production Natural resources (Land)– “free gifts of nature” Land, minerals, oil, forests, air, and timber Capital Resources – “manufactured aids to production” Tools, machines, equipment, factories Things used in producing goods and services and getting them to consumers. Human Resources (Labor)– “mankind’s physical and mental talent” These are the skills people have that are used to produce goods and services. Entrepreneur – the individual who combines the factors of production in order to produce a good or service. Risk taker, policy maker, and innovator

4. Circular flow of income and output

5. What does the circular flow model show us? Why is a relationship between the factor market and the product market necessary for the economy to stay strong?

6. What are the bean bag firms inputs? Workers and materials (cloths, thread, and beans)

7. What is the basic question that a business owner has to answer in regards to labor? How many workers to hire?

8. Do more workers always mean an increase in output? Explain. No, at some point output drops (not enough capital)

9. What is Marginal Product of Labor? Change in output from hiring one more worker

10. What is the marginal product of labor for the second worker? 6 (up from 4) 1st=4 2nd=10

11. Why does that second worker add more to output than the first? Start to specialize jobs Cook Waiter Dishwasher

12. At what point does the marginal product of labor start to decrease? Why? -Not enough to do The 4th worker Not enough tasks (only 3) so people with down time.

13. What is capital? Humans made resource that is used to produce other goods.

14. What is the factories capital? Sewing machine and pair of scissors

15. What happens to product of labor if a factory hires way too many people? Marginal product of labor goes negative

16. What are the two categories of costs? Teachers Salary *Salary All Others *Hourly Fixed and variable

17. What is Fixed Cost? Cost that doesn’t change

18. What does it involve? Give a few examples. Rent, machine repairs, property taxes, and salaries Product facility, building and equipping factory, office Store or restaurant

19. What is Variable Cost? Costs rise and fall depending on quantity produced

20. What do they involve? Give a few examples. Raw materials and some labor Labor-# of workers change, electricity, and heating Labor

21. What are its variable costs? Workers Fabric Beans

22. What do you get when you add the two costs? Total costs

23. What is Marginal Revenue? Additional income from selling one more unit

24. What happens to the marginal revenue when the 11 th bean bag is produced? Stays the same No gain is made Next one will take from profits

25. T/F The company would be better off producing less and keeping its costs down. True, more economical

26. Should a factory losing money continue to produce goods and lose money? Yes, will lose less $ then being shut down and losing fixed costs Fixed cost still have to be paid(rent, loan, etc…)

27. Graphing Production Possibilities The Production Possibilities Frontier (PPF) is a graph that shows all possible combinations of two goods when an economy is producing at full potential. It does not actually show reality, since it assumes only two goods are produced. It is a simplification that shows what sort of trade-offs would be made in reality. It only shows what can be produced – not what would be consumed.

28. PPF for the Country Guns Butter A point on the graph represents how much of each item is being produced. 800

29. PPF for the Country Guns Butter The frontier shows the limit of what can be produced – all possible combinations when all resources are fully utilized.

30. PPF for the Country Guns Butter 1500 All resources are being used to produce guns.

31. PPF for the Country Guns Butter 1500 2000 All resources are being used to produce butter.

32. Usually a point is chosen where both items are being produced:

33. PPF for the Country Guns Butter 1100 1500

34. Production may occur anywhere on or within the frontier. It may NOT occur beyond the frontier– there are not enough resources to do so.

35. PPF for the Country Guns Butter A At point A (and at any point on the frontier), production is EFFICIENT.

36. Efficient production means that all resources are being fully employed to produce the most goods and services possible. Therefore it is impossible to produce more of one item without producing less of the other.

37. PPF for the Country Guns Butter B At point B (and at any point inside the frontier), production is INEFFICIENT.

38. Inefficient production means not all resources are being fully employed – it is still possible to increase production of both goods. This could occur during a recession or depression, or in a developing country.

39. The PPF can be used to show tradeoffs. Any two or more points on the frontier represent tradeoffs.

40. PPF for the Country Guns Butter A B A and B represent tradeoffs. A produces more guns, B produces more butter.

41. The PPF can be used to show the opportunity cost of choosing one alternative over the other.

42. PPF for the Country Guns Butter A B 1400 800 1700600 The opportunity cost of A equals the decrease in butter: 1100 units.

43. PPF for the Country Guns Butter A B 1400 800 1700600 The opportunity cost of B equals the decrease in guns: 600 units.

44. The PPF can also show economic growth by moving outward. This may occur due to additional resources, increasing population, or new technology.

45. PPF for the Country Guns Butter Growth

46. Review Any point on the graph shows how much of both goods is being produced. Efficiency is shown by whether the point is on the curve (efficient) or within the curve (inefficient). Tradeoffs are shown by any two points on the curve. Opportunity cost is shown by the decrease in one good when the other is increased. Growth is shown by the frontier moving outward.

47. Production Possibility Graphs Graphing the documentary “Broke…” https://www.youtube.com/watch?v=va2qj4Zv4QM

48. Production Possibility Graphs Decide which goods and services to examine from the film. The film will outline the choices made by some professional athletes. You will select and highlight some of those choices. A represents all of one choice, B represents all of another choice. A will be the choice they made, B will be another choice either stated they could have made, or one you think they could have made. Your graph will have a description of the following terms in regard to the film: 1. Production Possibility Frontier – the connecting line between A and B. 2. Trade-offs – differing choices made because resources are scarce. 3. Efficiency – using resources in such a way as to maximize production. 4. Underutilization – using fewer resources than the economy is capable of producing.

49. Define these terms from “Broke…” Sudden Wealth Effect… Draped… Bling Bling… How much for a “Grand Slam Package?” Three examples of “Mo Money, Mo Problems…”

50. Class discussion questions for the documentary “Broke” 1. Describe the premise of the documentary. 2. List the problems incurred and described by the athletes. 3. What are the root issues with these athletes? Are the stories they tell the problem, or are they the symptom? 4. Do other socioeconomic levels experience similar issues on differing scales? Why or why not? 5. How could the problems be handled differently? 6. Could seniors in high school put themselves into this situation on a relative scale? 7. How can you prevent this in your life?