What is Economics?

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What is Economics?

• Chapter 1

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Economics

• The study of how people seek to satisfy their
  needs and wants by making choices

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Needs vs. Wants

• Needs things NECESSARY for survival
• Wants things we desire but are NOT ESSENTIAL to
  survival

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Scarcity

• Limited quantities of resources to meet unlimited
  wants

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Shortage

• A situation in which a good or service is
  unavailable

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Factors of Production

• Land
• Labor
• Capital
• Human
• Physical

Remember these! You will hear them a lot this
semester!
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Land

• Natural resources (land, coal, water, forests,
  etc.)

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Labor

• The effort people devote to a task for which they
  are paid

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Capital

• Physical Human made objects used to create other
  goods and services
• Human The skills and knowledge gained by a
  worker through education and experience

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Entrepreneurs

• Ambitious leaders who combine land, labor, and
  capital to create and market new goods and
  services.

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Opportunity Cost

• There is no such thing
• as a free lunch!

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Spring BreakWhich would you choose?

• Hawaii New York
• Las Vegas Cancun
• Paris Tokyo
• Vail Tahiti

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Trade-offsoptions when you make a choice.

• Individuals
• work or free time
• study or sleep

• Business
• Goods or Services
• Produce or Sell

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Decision Making Grid
Alternatives Alternatives
Sleep Late Wake up early to study
Benefits ? ?
Decision Sleep Late Wake up early to study
Opportunity Cost ? ?
Benefits forgone ? ?
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Thinking at the Margin
Options Benefit Opportunity Cost
1st hour of extra study time ? ?
2nd hour of extra study time ? ?
3rd hour of extra study time ? ?
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Production Possibilities Curves

• Graphs that show alternative ways to use an
  economys resources

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Al's Coffee Shop!
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Coffee
50
Tea
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Al's Coffee Shop!
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Coffee
Any production in this space is
inefficientyou have the supplies but arent
making the coffee or tea
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Tea
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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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Al's Coffee Shop!
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Any production along this line is EFFICIENT
Coffee
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Tea
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Growth

• Growth If more resources become available, or if
  technology improves, an economy can increase its
  level of output and grow. When this happens, the
  entire production possibilities curve shifts to
  the right.

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Al's Coffee Shop!
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Al gets a loan from The bank and now He can make
even More coffee or tea!
Coffee
50
Tea
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Chapter 1Things to think about
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What is the difference between a good and a
service?
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How is scarcity different from shortages?
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What does the term guns or butter mean?
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What does it mean to think at the margin?
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What are the opportunity costs involved in
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Eating pizza
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Going to see a movie on a Tuesday
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Going to see a movie on a Saturday
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Watching TV
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Studying for a test
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Finishing High School
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Getting Married
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Having a Kid
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How is underutilization depicted on a production
possibilities frontier?
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How does a production possibilities curve
illustrate opportunity cost?
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Decide whether to work 2, 4, or 6 hours at an
after-school job by comparing the opportunity
cost and benefit of each alternative. Benef
it Cost2 hours4 hours 6 hours
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Decide whether to finish the semester and
graduate by comparing the opportunity cost and
benefit for each alternative
Benefit CostGraduate NowGraduate laterGet a
GEDDrop Out