1. Chapter 1 Introductory Concepts

2.  Economics – the study of how people make choices under conditions of scarcity and of the results of those choices for society.  Scarcity – Although we have boundless needs and wants, the resources available to us are limited. So having more of one good thing usually means having less of another. Scarcity *******No-Free-Lunch Principle*******

3. Introductory Concepts  The Cost-Benefit Principle - An individual (or a firm or a society) should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs.  Costs – Direct and Opportunity: Direct – out of pocket expenses OpportunityOpportunity – represent the value of the best possible alternative that is given up in the decision to use a resource. Opportunity

4. Introductory Concepts  Assignment #1:  In 250 words or less discuss why the keypads on drive-up automatic teller machines have Braille dots.

5. Introductory Concepts  Production Possibility Curves: - The various combinations of output a nation (corp.) can produce in a fixed time period. - The various combinations of output a nation (corp.) can produce in a fixed time period.  Assumptions: 1) All economic resources are being used efficiently 2) Two goods are being produced depicting choices and trade-offs for a nation

6. Introductory Concepts  Productive Efficiency is when a company utilizes the right combination of capital and labour for the least cost of production. This minimizes waste and therefore is closest to its PPC.  If a company can’t reach its PPC, unemployment results and/or underutilized capital. There is an inefficient allocation of resources. This is most likely during a recession/depression. Points outside the PPC are only achievable if a fixed resource is increased.

7. Introductory Concepts  Points to the left of the curve illustrate inefficient use of resources  Points to the right are unattainable with current levels of resources. They can be attained by increasing variable resources – Capital, Labour & Land.

8. Introductory Concepts  Draw a production possibilities curve showing Susan’s production.  State whether the following points are attainable/efficient:  20 pounds of coffee/day, 4 pounds of nuts/day  12 pounds of coffee/day, 6 pounds of nuts/day  4 pounds of coffee/day, 8 pounds of nuts/day Pounds of Coffee Beans Pounds of Pine Nuts 240 164 88 012

9. Introductory Concepts  The Law of Diminishing Returns The Law of Diminishing Returns The Law of Diminishing Returns  When a fixed resource (land) is combined with increasing amounts of a variable resource (labour/capital), the increases in total output will eventually become smaller and smaller.  Adding more workers may reduce efficiency – not enough space or land to increase output.  The size of the building restricts the amount of new machines. (Renovate, buy, expand)

10. Introductory Concepts  Absolute Advantage – one person has an absolute advantage over another if he or she takes fewer hours to perform a task than the other person. Absolute Advantage Absolute Advantage  Comparative Advantage – one person has a comparative advantage over another if his or her opportunity cost of performing a task is lower than the other person’s opportunity cost.

11. Introductory Concepts Time to update a Web page Time to complete a bicycle repair Paula 20 mins. 10 mins. Beth 30 mins. OC of updating Web page OC of a bicycle repair Paula 2 bicycle repairs 0.5 Web page updates Beth 1 bicycle repair 1 Web page

12. Introductory Concepts  The Principle of Comparative Advantage:  Everyone does best when each person (or each country) concentrates on the activities for which his or her opportunity cost is lower.