1. Chapter 1
What is Economics

2. VOCABULARY: Economics Need Want Scarcity Choices/ Trade-offs Goods
Services

3. Coping with Scarcity Needs vs. Wants Basic Economic Problem
Need--Basic requirement for survival
Food, water, shelter, clothing
Want—Something we desire but not necessary for survival
Basic Economic Problem
We have unlimited wants and needs BUT we also have limited resources
This produces scarcity--

4. Coping with Scarcity Scarcity
A situation in which the amount of something actually available would not be sufficient to satisfy the desire for it, if it were provided free of charge.
NOT the same as a Shortage.
Shortage is short term (like a store running out of bread…there will be more bread tomorrow)
Scarcity creates the need for
Choice
Trade-offs

5. What is Economics? Resources are scarce!
So then the big two concepts are that:
Resources are scarce!
Society has unlimited needs and wants!
Economics decides the “best” way of providing one to the other

6. Needs and wants and value
Transferable economic product—most needs and wants are expressed in terms of something that can be passed from one person to another (transferable).
Goods and services
Goods:
Durable—made to last and use three years or longer
Nondurable—made to last less than three years
Consumer good—to be used by individuals rather than business
Capital good—to be used by business rather than individuals

7. Needs and wants and value
the worth that can be expressed in dollars and cents
Paradox of value
Scarcity and necessity
Utility—the capacity to be useful and provide satisfaction
Diamonds vs. water

8. Scarcity
Definition
A situation in which the amount of something actually available would not be sufficient to satisfy the desire for it, if it were provided free of charge.

10. … MORE VOCABULARY Shortage Factors of Production Land Labor Capital
Physical Capital
Human Capital

11. Factors of Production There are 4 factors that must all be used to produce anything
Natural Resources (also referred to as “land”)

12. Factors of Production There are 4 factors that must all be used to produce anything
Labor – effort of a person for which they are paid

13. Capital – human-made resources used to create other goods
Factors of Production There are 4 factors that must all be used to produce anything
Capital – human-made resources used to create other goods

14. Factors of Production There are 4 factors that must all be used to produce anything
2 Kinds of Capital
Physical Capital – Also called Capital Goods, objects that are used to produce other goods

15. Factors of Production There are 4 factors that must all be used to produce anything
2 Kinds of Capital
Human Capital – knowledge or skills workers get from education and experience

18. Factors of Production There are 4 factors that must all be used to produce anything
Entrepreneurship – person who takes a risk in combining the other 3 factors to create a new good

19. VOCABULARY CONTINUED…
Entrepreneurs

21. Making Economic Decisions
Every decision we make involves trade-offs – alternatives that we must give up when we make a choice
Example – “I could stay up for 3 hours playing Halo, study, or sleep.”

22. 1.1 QUIZ – get a partner! Number your paper 1 - 6
1. Which of the following are factors of production?
a. Capital and Land
b. Scarcity and shortages
c. Technology and productivity
d. economics and business decisions

23. Answer is …
a. capital and land

24. Next question … a. hiring more workers to do a job?
2. Which of the following is an example of using physical capital to save time and money?
a. hiring more workers to do a job?
b. building extra space in a factory to simplify production
c. switching from oil to coal to make production cheaper
d. lowering workers’ wages to increase profits

25. Answer is …
b. building extra space in a factory to simplify production

26. next question …
3. To what part of an industry does a worker’s education contribute?
a. technology
b. physical capital
c. human capital
d. scarce resources

27. Answer is …
c. human capital

28. next question … 4. Which of the following is an entrepreneur?
a. a person who earns a lot of money as a singer or dancer
b. a person who creates a game and sells it to a game manufacturer
c. a person who starts an all-organic cleaning supplies business that employs others
d. a person who works as a highly paid computer programmer

29. Answer is …
c. a person who starts an all-organic cleaning supplies business that employs others

30. Next … 5. What is the difference between a shortage and scarcity?
a. A shortage can be temporary or long-term, but scarcity always exists.
b. A shortage results from rising prices; scarcity results from falling prices.
c. A shortage is a lack of all goods and services; scarcity concerns a single item.
d. There is no real difference between a shortage and scarcity

31. answer …
a. A shortage can be temporary or long-term, but scarcity always exists!

32. next…. 6. What does an economist mean by the term LAND?
a. farmland only
b. food crops grown on farmland as well as the farmland itself
c. goods and services that are produced form the land
d. all natural resources used to produce goods and services

33. answer …
d. all natural resources used to produce goods and services!

34. FIVE appealing VACATION Destinations…
Section 1.2 – Opportunity Cost
FIVE appealing VACATION Destinations…
Hawaii
Paris
Dunns River Falls, Jamaica
Volunteer: What is your first choice? What is your second choice?
Ireland
Alaska

35. Making Economic Decisions
Every decision we make involves trade-offs – alternatives that we must give up when we make a choice
Example – “I could stay up for 3 hours playing Halo, study, or sleep.”

36. Making Economic Decisions
The most desirable of the options you pass up is called the Opportunity Cost
Rank sleep, studying, and playing video games 1st, 2nd, and 3rd on a list for what you value the most

37. Making Economic Decisions
1st Place is what you would choose to do
2nd Place is your opportunity cost (you give it up to do option 1)

38. Making Economic Decisions
What other option do you have other than using 3 hours for one task?
You could split your time among multiple activities!
Thinking at the Margin – decision involving adding one unit and subtracting one unit, rather than all or nothing

39. Making Economic Decisions
Options
Benefit
Opportunity Cost
0 hours studying, 3 hours sleeping
F on Test
None
1 hours studying, 2 hours sleeping
C on Test
1 hour of sleep
2 hours studying, 1 hour sleeping
B on Test
2 hours of sleep
3 hours studying
B+ on Test
3 hours of sleep

40. Making Economic Decisions
There is a point at which you are paying the same increase in cost, but seeing lower benefits
You must make the decision as to whether the cost is worth it
This same process is used by businesses and consumers to make decisions

41. QUIZ time .. grab a partner! Number your paper 1 - 3
1. If a person who wants to buy a compact disc (CD) has just enough money to buy one, and chooses CD A instead of CD B, then CD B is the
a. trade-off
b. opportunity cost
c. decision at the margin
d. opportunity at the margin

42. answer is …
b. opportunity cost

43. next… 2. A decision-making grid is a visual way of:
a. examining opportunity costs
b. selling goods or services
c. making marginal decisions
d. identifying shortages

44. answer is ..
a. examining opportunity costs!

45. next …
3. A decision is made at the margin when each alternative considers
a. a different trade-off than the others
b. where the most costly alternative will be.
c. what the “all or nothing” alternative will be.
d. cost and benefit ranked in progressive units.

46. answer …
c. d. cost and benefit ranked in progressive units

47. GRAPHS…. Section 1.3 – Production Possibilities Curves
WHY do graphs sometimes show information more clearly than text or tables?

48. Production Possibilities
Production Possibilities Graph – shows alternatives to what an economy can produce
Let’s say we can produce 2 things: Guns and Butter

49. Production Possibilities

50. Production Possibilities
Production Possibilities Graph – shows alternatives to what an economy can produce
The outer red line shows the maximum possible output with any given combination
This is the Production Possibilities Frontier (or Curve)

51. Production Possibilities
To move from one point to another, the economy must make trade-offs

52. Production Possibilities
Any point along the line shows the economy operating at maximum efficiency
Any point below the line is underutilization – they are not getting all that they could
Any point above the line is presently impossible, until new resources are available

53. Production Possibilities
Why does the graph curve instead of making a straight line?
Law of Increasing Costs – as production increases for one item, more and more resources are necessary to increase production of the second item! The OPPORTUNITY COST increases…

54. Production Possibilities
Every resource is best suited for certain types of goods
Farmland and cows make butter
Metals and factories make guns and many times you hear about butter vs. guns due to military spending on weaponry using resources …
To convert butter production to guns, you must sell the cows and build new factories on the land

55. QUIZ time .. grab a partner! Number your paper 1 - 5
1. The economic concept of guns or butter means that …
a. a person can spend extra money either on sports equipment or food.
b. a company must decide whether to manufacture guns or butter
c. a government must decide whether to produce more or less military or consumer goods
d. a government can buy unlimited military and civilian goods if it is rich enough

56. answer …
c. a government must decide whether to produce more or less military or consumer goods … trade off …. due to scarcity!

57. next …
2. A production possibilities curve shows the relationship between the production of:
a. farm goods and factory goods
b. two types of farm goods
c. two types of factory goods
d. any two categories of goods

58. answer
d. any two categories of goods.

59. next …
3. The line on a production possibilities curve showing the relative amounts of two types of goods produced using all resources is called the
a. production possibilities frontier
b. opportunity cost line
c. utilization of resources
d. maximum possible production line

60. answer …
a. production possibilities frontier

61. question …
4. The law of increasing costs means that as production shifts from one item to another,
a. the cost of production gets cheaper and cheaper.
b. the cost of producing an item stays the same no matter how many are produced.
c. more and more resources are necessary to increase production of the second item
d. the land costs of increasing production rise much more steeply than do the labor costs

62. answer is …
c. more and more resources are necessary to increase production of the second item

63. and last question …
5. The curve usually seen in a production possibilities frontier can be explained by:
a. growth in the economy
b. underutilization of resources
c. increasing an economy’s efficiency
d. the law of increasing costs

64. final answer is …
d. the law of increasing costs!

65. An economy that is efficient is …
producing the maximum amount of goods and services .. now that’s efficient!