1. CH.1 What is Economics? Mrs. Post - CHS Adapted from Prentice Hall Presentation Pro Software Presentations

2. Chapter 1SectionMain Menu Scarcity and the Factors of Production LEARNING OBJECTIVES What is economics? How do economists define scarcity? What are the three factors of production?

3. Chapter 1SectionMain Menu What Is Economics? Economics = the study of how people (consumers & businesses) make choices to satisfy their wants and needs –For example: You must choose how to spend your time Businesses must choose how many people to hire

4. Chapter 1SectionMain Menu Choice is relative! Consider your options to fill your need Goods (G) = physical object to fill your need/want Services (S) = action/activities commonly person to person

5. Chapter 1SectionMain Menu Scarcity and Shortages Scarcity occurs when there are limited quantities of resources to meet unlimited needs or desires Example? Shortages occur when producers will not or cannot offer goods or services at current prices Example? “You can’t always get what you want but if you try sometimes you get what you need.” Rolling Stones

6. Chapter 1SectionMain Menu The Factors of Production (FOP) Land All natural resources that are used to produce G & S. Examples: Labor Any effort a person devotes to a task for which that person is paid. Examples: Capital Any human-made resource that is used to create other G & S. –Physical Capital are tangible resources Examples: –Human Capital is non-tangible resources Examples:

7. Chapter 1SectionMain Menu The Factors of Popcorn Production Land Popping Corn Vegetable Oil Labor The human effort needed to pop the corn Capital Corn-Popping Device

8. Chapter 1SectionMain Menu Opportunity Cost LEARNING OBJECTIVES Does every decision you make involve trade-offs? How can a decision-making grid help you identify the opportunity cost of a decision? How will thinking at the margin affect decisions you make?

9. Chapter 1SectionMain Menu Trade-offs and Opportunity Cost Trade-offs = all the alternatives that we give up whenever we choose one course of action over others. The most desirable alternative given up as a result of a decision is known as opportunity cost. All individuals and groups of people make decisions that involve trade-offs. ( i.e. career choices)

10. Chapter 1SectionMain Menu Who makes Choices? Individuals, Businesses and Countries all experience Opportunity Cost –Individual – study for Econ test vs. playing wii –Business – choosing which FOP to use to create G&S –Countries – how to use tax monies? “guns or butter?” –Guns = militatry goods –Butter = consumer goods for citizens Homework Assignment: students must record the number of choices they make in 1 day listing all trade-offs for each decision denoting the opportunity cost

11. Chapter 1SectionMain Menu The Decision-Making Grid Economists encourage us to consider the benefits (gain) and costs (sacrifice) of our decisions. BenefitsEnjoy more sleep Have more energy during the day Better grade on Mrs. Post’s test Teacher and parental approval Personal satisfaction DecisionSleep lateWake up early to study for test Opportunity costExtra study timeExtra sleep time Benefits LostBetter grade on test Teacher and parental approval Personal satisfaction Enjoy more sleep Have more energy during the day Sleep lateWake up early to study Alternatives Karen’s Decision-making Grid

12. Chapter 1SectionMain Menu Thinking at the Margin Thinking at the margin = deciding more or less of the specific option (what if 1 additional unit or resource is used) Options 1st hour of extra study time 2nd hour of extra study time 3rd hour of extra study time Benefit Grade of C on test Grade of B on test Grade of B+ on test Opportunity Cost 1 hour of sleep 2 hours of sleep 3 hours of sleep

13. Chapter 1SectionMain Menu Production Possibilities Graphs LEARNING OBJECTIVES What is a production possibilities graph (PPG)? How do PPG show efficiency, growth, and cost? Why are production possibilities frontiers (PPF) curved lines?

14. Chapter 1SectionMain Menu Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Production Possibilities Graph Watermelons (millions of tons) 0 a (0,15) 15 814 b (8,14) 14 18 20 21 12 9 5 0 A production possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) Production Possibilities PPG show alternative ways that an economy can use its resources. The production possibilities frontier (PPF) is the line that shows the maximum possible output for that economy. Reveals important information like efficiency, growth, & cost

15. Chapter 1SectionMain Menu Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Watermelons (millions of tons) Production Possibilities Graph g (5,8) A point of underutilization c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Efficiency Efficiency = using resources in such a way as to maximize the production of G & S. An economy producing output levels on the production possibilities frontier is operating efficiently.

16. Chapter 1SectionMain Menu Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Watermelons (millions of tons) Production Possibilities Graph T Future production Possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Growth Growth when – more resources become available, –if technology improves When this happens, the entire production possibilities curve “shifts to the right.” –See Law of Increasing Cost Fig 1.7 on page 17 in text book

17. Chapter 1SectionMain Menu Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Production Possibilities Graph Watermelons (millions of tons) 14 18 20 21 12 9 5 0 015 814 c (14,12) d (18,9) Cost Cost A PPG shows the cost of producing more of one item. To move from point c to point d on this graph has a cost of 3 million pairs of shoes.