Warm-Up

1

• Warm-Up
• What is scarcity?
• What are the three factors of production?

2
What is Economics?
Economics is the study of how people seek to
satisfy their needs wants by making choices.
3
Scarcity

• What is Scarcity?
• What is a need?
• What is a want?

• Scarcity is the limited quantities of resources
  to meet unlimited wants.
• Something that is necessary for survival (air,
  water, etc.)
• An item that we desire that is not essential to
  survival.

4
Goods Services

• What is considered a Good?
• Shoes
• Shirts
• cars

• What is considered a Service?
• Haircuts
• Dental checkups
• tutoring

5
Factors of Production

• Land
• All natural resources to produce goods and
  services

• Labor
• The effort that a person devotes to a task for
  which that person is paid

• Capital
• Any human-made resource that is used to produce
  other goods and services

6
Physical Capital

• Human-made objects used to create other goods and
  services.
• Examples
• Buildings and tools

7
Human Capital

• The knowledge and skills a worker gains through
  education and experience
• Example
• Assembly-line workers use equipment and skills
  acquired through training and practice to produce
  goods.

8
Opportunity Cost

• The most desirable alternative given up as a
  result of a decision
• Example
• Nations often chose to build up their military
  (they produce more guns), they give up producing
  more food and other resources in turn (butter),
  Guns or Butter

9
Thinking at the Margin

• From an economists point of view, when you
  decide how much more or less to do, you are
  thinking at the margin.

Options Benefits Opportunity Cost
1st hour of extra study time Grade of C on test 1 hour of sleep
2nd hour of extra study time Grade of B on test 2 hours of sleep
3rd hour of extra study time Grade of B on test 3 hours of sleep

• What would you choose?

10
Trade-Offs

• Trade-offs are all the alternatives that we give
  up whenever we choose one course of action over
  another.
• Example
• If you join the soccer team you give up time
  watching TV after school

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Definitions

• Cost of Living
• the average cost of food, clothing, and other
  necessary or usual goods and services paid by a
  person, family, etc., or considered as a standard
  by the members of a group.

• Real Wage
• The term real wages refers to wages that have
  been adjusted for inflation.

• Inflation
• Inflation is the persistent rise in the general
  price level as measured against a standard level
  of purchasing power.

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Trade Offs Opportunity Costs
In the words of the Rolling Stones You Cant
Always Get What You Want
The Decision Making Grid I am giving you 100
for fun. How are you going to use this money?
Alternatives Cost (100 or less) Durable Parents Approve Future Expenses Can Use Anytime





What is the best alternative? What are the
tradeoffs? What is the opportunity cost? Why is
this grid effective?
13

• Warm-Up
• What are the three main questions of economics?
• What is a good?
• What is a service?

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Topic 1 Day 2

• Basic Economic Concepts

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What is Economics?

• Definition of Economics
• A social science (like history, geography,
  political science)
• Studies, analyzes, predicts and explains economic
  activity
• Study of Scarcity

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Handy Dandy Guide to Economics

1. People choose
2. Choice involves cost
3. People respond to incentives which can be
   predicted
4. People create economic systems that influence
   choices and incentives
5. People gain when they voluntarily trade
6. Choices have consequences

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What goes into the production of something?

• Ex. Make a sandwich
• Ex. Baking a cake

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• The Fundamental Problem All Economies Face
• Scarcity

When peoples needs/wants exceed available
resources
Scarcity of What?
Labor
Capital
Entrepreneurship
Land
These are known as FOPs (Factors of Production)
OR Productive Resources
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The FOPs
C
Capital Human (intelligence/skills) Financial
(Money) Physical (tools, equipment,
buildings/factories)
Entrepreneurs Risk Takers people who risk
savings in order to gain a profit increase
competition by bringing new g/s to the market
lower prices
E
L
Land Consists of any natural resources (raw
materials land for people to build
homes/offices trees, oil)
L
Labor Fluctuates (growth/decline life
expectancy work skills) and can impact an
economys productivity
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3 BEQs (Basic Economic Questions)
1.
What to Produce? Usually based on available FOPs
in an economy.
How to Produce? Usually based on available
technology and decided based on EFFICIENCY.
2.
For Whom Are we producing? Go for the target
audience where the demand is.
3.
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Warm-Up

1. List as many different types of economies that
   you can think of?
2. How much control should a government of a country
   have in terms of economics? Explain.
3. Do you think that the government has too much
   control in our economy today? Give an example.

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Economic Systems

• Command
• BEQs decided by central authority set the
  needs and goals of a country (often use quotas)
• ADV Economies can change quickly (no debate)
• DISAD doesnt meet n/w of people lacks
  incentives lack consumer goods little to no
  innovation
• Are individuals Free to make Economic Decisions?

• Traditional
• BEQs dictated by tradition, ritual, habit
• Everyone knows their role
• Little change, no risk, no new ideas, stable
• Are individuals Free to make Economic Decisions?

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Economic Systems

• Market
• BEQs decided by supply and demand (consumers
  producers)
• NO govt involvement
• ADV lots of g/s Laissez-Faire satisfies n/w
  incentives innovation private ownership
• DISAD mkt failures (monopolies) rewards only
  productive resources
• Are individuals Free to make Economic Decisions?

• Mixed-Market
• Most BEQs are determined by demand
• SOME govt interference
• ADV protects consumers preserves competition
  private AND public ownership incentives
• DISAD More govt regulation and involvement
• Are individuals Free to make Economic Decisions?

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Free Enterprise

• Consumers business owners decide what to
  produce, not the govt

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Basic Concepts
Needs Wants

Expressions of needs (not essential to
survive) Ex. Transportation, technology,
luxurious g/s
Basic g/s necessary for survival Ex food, water,
shelter, clothes
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Basic Concepts
Goods and Services
Capital Good/Serv.
Consumer Good/Serv.
Durable Goods
Non-Durable Goods
Free Products
Manufactured good used to produce another g/s
(tires for car, truck used for delivery)
Good purchased for final use by consumer (car,
haircut)
Goods that last 3 or more years (car, appliances)
Goods that least less than 3 years (most foods,
clothing)
Provided by nature that produce g/s (solar
energy, wind power)
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Confused? Illustrate this in your notes
Products
Economic Products
Free Products Sunshine, air, wind
Goods
Services
Performed by other people nurses, food serving,
etc
Consumer
Capital
Used by the Consumer
Used to make other goods
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Basic Concepts...
TINSTAAFL
There Is No Such Thing As A Free Lunch
Even when a g/s appears to be free, there is
always a cost involved (labor and wages, RM used
to make the g/s, someone else paid along the
way) Ex Buy One Get One Free you are paying
for the first one, but the price had been
increased so that profit is still being made on
the second AND somebody somewhere got paid to
make that second goodso its not free
Paradox of Value
Diamonds VS. Water Theory
Diamonds are rare, limited, and a
WANT..expensive Water is abundant and a
NEED.more affordable Thus, when something is
SCARCE, it creates value (regardless of need or
want) When something is not scarce, its cheap.
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Basic Concepts...
Economic Interdependence

• Economies are DEPENDENT on each other
• Actions in one part of the world or country have
  an impact on other parts of the world or country.
• For example a candy bar purchased at Stewarts
  may have been manufactured in New York, but the
  sugar, cocoa and corn syrup came from all over
  the world

Specialization Division of Labor

• Adam Smith The Wealth of Nations, (1776)
• Economies/Workers are MOST EFFICIENT when they
  produce what they are best at (The Invisible
  Hand)
• Assembly Line specialize in one task instead
  of many
• Trade produce and trade your most efficient
  FOPS

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Topic 2 Day 2The PPF
The Production Possibilities Frontier
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Review Thinking at the Margin

• When you decide how much more or less to do, you
  are thinking at the margin.

32
The Production Possibilities Frontier

• Axis categories of goods services or specific
  goods or services on 1 axis and 1 on another
• Using the factors of production to make one
  product means that fewer resources are left to
  make something else
• The production possibilities frontier is the line
  that shows the maximum possible output for that
  economy.

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Production Possibilities Frontier
0 15
8 14
14 12
18 9
20 5
21 0
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The PPF
Production Possibilities Frontier
What does the PPF show?
The various combinations of TWO g/s produced
using all FOPS efficiently
What does each point represent? A B C D E
B
E
Guns
A
D
C
Butter
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Production Possibilities Frontier
Unattainable Without growth
Wartime
B
E
Normal Production
Guns
A
D
C
Peacetime
Butter
Attainable depression
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What does this all mean?

• Point A normal production 50/50
• Point B wartime (80/20)
• Point C post war (30/70)
• Point D underutilization (unemployment)
• Point E cant produce enough unless more
  factors of production (population growth borrow
  money) increase shift right more FOPs more
  production

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Efficiency

• Efficiency means using resources in such a way as
  to maximize the production of goods and services.
  An economy producing output levels on the
  production possibilities frontier is operating
  efficiently.

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When the PPF shifts to the right, it means that
there was an increase in FOPS (more capital,
labor, etc)
What would it mean if the PPF shifted to the left?
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Law of Increasing Costs

• As production switches from 1 item to another,
  more and more resources are necessary to increase
  production of the 2nd item
• Therefore, the opportunity cost increases

40
Concept Review

• Trade-Off Trade-offs are all the alternatives
  that we give up whenever we choose one course of
  action over another.
• Opportunity Cost The most desirable alternative
  given up as a result of a decision

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Famous Fads
The Real World