1. Fundamental Concepts of Economics  What is Economics?
Unit Notes, Key Terms, and Concepts

2. Widget Game Debriefing
Were you successful?
Why weren’t you successful?
Why were some teams able to produce more widgets than others?
How did your team adapt to the reality you were faced with?
From a bigger picture – what would you call the marker, paper clips, paper, and the people used to make the widgets?
How do you think the widget game relates to real life?
How do you think this relates to the bigger picture of economics?

3. Overview
ECONOMICS is the study of how people seek to meet their needs and wants by making choices.
SCARCITY = the condition that exists when unlimited wants exceed limited productive resources.
needs & wants are greater than resources which are both limited and desirable
not temporary/always exist
result = choices must be made

4. Productive Resources Are items necessary to produce goods and services
Four Categories of Productive Resources
Land (natural)
Labor (human)
Capital (goods)  Physical and Human
Entrepreneurship

5. Brainstorming Activity – Identify 5 examples of each
Land
Labor
Capital
Entrepreneurship

6. Factors of Production Activity
Land
Entrepreneurship
Capital
Labor
Identify a scenario in which an entrepreneur is using various factors of production to run his/her business (make-up a business). Identify necessary resources and identify which category each resource falls.

7. Resource Allocation
Supply and Demand – based on who can afford the resource – use of prices
Authority – a group/person in power decides
Random Selection – lottery – gives everyone the same chance
First Come, First Served
Personal Characteristic
Contest

8. Key Questions 1) What to produce? 2) How to produce?
3) For whom to produce?

9. Opportunity Cost Trade-offs are ALL possible alternatives, while
Defined: value of the next best alternative given up when making a choice.
Choice causes you to give up one option in order to gain the benefits of another.
There is no such thing as a free lunch!!!!
Trade-offs are ALL possible alternatives, while
OC is only the next best alternative.

10. Production Possibilities
Answers Question: What to produce?
Defined: relationship between two possible alternatives when using ALL available resources.
can be graphed in a PPC curve to illustrate
The two alternatives are INTERDEPENDENT with one another.

11. Production Possibilities: What to produce?

12. Production Possibilities
Production Possibility Frontier
all the possibilities of production along the curve
Underutilization
occurs inside the curve – meaning you are not using all available resources

13. Production Possibilities Frontier (PPF)
Is Point C attainable?
Is Point D attainable?

14. Make Your Own Example…
Create your own situation where you are weighing the opportunity costs between two choices…
Construct a PP Table
Use your table to construct a PPC

15. Marginal Cost (MC) vs. Marginal Benefit (MB)
MC defined - the COST of procuring one more item
MB defined - the BENEFIT associated with gaining that one additional item
Marginal Analysis - Occurs when weighing the MC of an option in comparison to the MB
Rational Decision = MB > MC

16. Marginal Analysis Y Z X

17. Marginal Analysis Y
Where do my Marginal Benefits outweigh my Marginal Costs?
Where do my Marginal Costs outweigh my Marginal Benefits?
If we are thinking rationally, at what point would I want to pursue further education? Z X

18. Thinking at the Margin
Economists look at the “additional” unit of cost compared to each “additional” unit of benefit
Known as “thinking at the margin” and assumes rational behavior
PROFIT Maximization  MC = MB (Point Z on sample graph

19. Example of MC & MB EX. Think about pizza –
You are willing to pay the price charged for a slice as long as you are hungry…
What will happen to your Marginal Benefit as you become more and more full?
as you get full, you will no longer be willing to pay for a slice because MC exceeds MB

20. Voluntary/Non-Fraudulent Exchange
Given: Productive resources are scarce and not distributed evenly throughout the world.
How do individuals/nations acquire the resources they need to meet their production needs?
VOLUNTARY TRADE/EXCHANGE!!!!

21. Typical Results from Trade
What happens when goods or services are voluntarily exchanged between nations, businesses, or individuals?
Both parties benefit…Why?
They are both able to consume more than before trade
Satisfaction of both increases

22. Use of Resources How do nations decide what to produce?
How do they decide how to produce?
How do they decide for whom to produce?

23. General Goals of Economic Systems
Economic Freedom
Economic Equity
Economic Security
Economic Growth
Economic Efficiency

24. Types of Economies: Market
Characterized by:
Private ownership – people can start their own businesses  accumulate wealth
Profit motive – incentive for entrepreneurs to start businesses  keep $ they make
Consumer sovereignty – consumers drive the market  bad products = failure
Competition – creates efficiency & keeps costs low  government protects competition
Adam Smith  laissez faire (hands off)
Government stays out
The Wealth of Nations (1776)

25. Types of Economies: Command
Characterized by Government Regulation
Control Economic Activity
Taxes
Redistribution of wealth – Rich Poor
Setting prices & wages
Issuing worker and product safety guidelines
Setting output quota
Government monopoly
Karl Marx/Frederich Engels
Communist Manifesto- (1848)
Ideas led to the Bolshevik (Russian) Revolution

26. Making Comparisons
MARKET COMMAND
MIXED

27. Types of Economies: Mixed
Most (if not all) have characteristics of both
Some lean more to market (capitalism) while others lean more toward command (socialism)
Why do you think most economies are mixed?
Can you identify examples of both in America?

28. Government Involvement in the Economy
Why do they get involved?
What are the benefits?
What are the costs?

29. U.S. Example of Costs

30. Government Regulation
Regulation – the government restricts producers in the free market to:
Promote the safety of consumers
ex. EPA (Environment Protection Agency) limits the amount of pollution produced
Protect consumers economically
 ex. Federal Reserve oversees the banks we use

31. Deregulation
Occurs when the government ceases to regulate (control) industry to
Promote competition among producers in the open market
Benefit consumers through more choices & lower prices
 ex. GA Public Commission deregulated natural gas

32. Increasing Productivity
Increasing INPUTS = increased OUTPUTS
The opposite is also true
Inputs are factors of production
Land, Labor, Capital, Entrepreneurship
 ex. Technology, interstate highways, improved education

33. Results of Changing Resources
An increase in productive resources can shift the Production Possibilities to the right or upward
A decrease in productive resources can shift the curve to the left or downward

34. Increased Resources = Increased Output

35. Increase in resources that impact one good more than the other…
“A” now attainable A

36. Loss of resources that impact both goods
Point A
no longer
attainable A

37. Point A no longer attainable