1. Positive vs. Normative Statements
Positive Statements – statements that describe the world as it is.
“A rise in consumer incomes will lead to a rise in the demand for new cars.”
“A fall in the exchange rate will lead to an increase in exports overseas.”
“More competition in markets can lead to lower prices for consumers.”
“If the government raises the tax on beer, this will lead to a fall in profits of the brewers.”
Normative Statements – opinions that describe how the world should be
“The government should increase the national minimum wage to $6 per hour in order to reduce relative poverty.”
“The government is right to introduce a ban on smoking in public places.”
“The retirement age should be raised to 75 to combat the effects of our ageing population.”

2. Chapter 2 – Thinking Like an Economist
Macroeconomics – study of the performance, structure, behavior and decision-making of the economy as a whole
Microeconomics – study of the decisions of individuals; households and firms and their interaction
Economics is a science
Devise theories, collect and analyze data, make assumptions
Economic Models – diagrams, graphs and equations used to represent human behavior and economic theory

3. Factors of Production Land Labor Capital Entrepreneurship
Factors of Production - resources required to produce economic products, goods and services
Land
Labor
Capital
Entrepreneurship

4. Land
Land – natural resources not created by human effort that are used to produce goods and services
The "gifts of nature".
Examples: Forests, fish, oil, gas, cattle, etc…

5. Labor
Labor – time and effort that a person devotes to producing goods and services.
Labor resources are those provided by the body and minds of men and women.
Examples: doctors, teachers, construction workers, etc...

6. Capital
Capital – resource that is used to produce additional goods and services
Capital is the machinery or tools that workers use to transform natural resources into finished products.
Examples: machines, computers, tablets, etc…

7. 3 Types of Capital
Physical Capital – also known as Capital Goods, human made objects used to create other goods and services
Examples: Machines, phones, computers, equipment
Human Capital –skills, abilities, and specialized talents of people
Examples: College, training, technical school, etc.
Financial Capital – money, used by entrepreneurs and businesses to buy what they need to produce their goods or services
Examples: money

8. Entrepreneurs
Entrepreneurs – ambitious business people who organize the factors of production to create new goods and services
Entrepreneurs are the "risk takers" who produce a good or service that they believe will succeed in the marketplace.

10. Goods Good – physical, tangible(touchable) product
i.e. – Automobiles, Video Games, Cell Phones, CD’s, Tickle Me Elmo, etc…

11. Services
Service – a non-tangible action or activity that is performed for someone else
i.e – Financial Advisor, Stock Broker, Movies, Dentist, Teachers, etc..

12. Needs vs. Wants OR Need – a basic requirement for survival
e.g. – food, clothing, education, etc…
Want – not a basic requirement for survival; a means of expressing a need
e.g. – cheeseburger, Abercrombie and Fitch, University of Georgia, etc… OR

13. Goods and Services Chart
Item advertised
Good/Service
Want/Need
Market

14. Classify the Factors of Production in the following scenario:
You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. The information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook cook used his knowledge of mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

15. Classify the Factors of Production in the following scenario:
Owner _________________________________
Computer _________________________________
Chief baker’s monitor _________________________________
Kitchen _________________________________
Cooks _________________________________
Knowledge of mixing dough _________________________________
Salt, flour, eggs, and milk _________________________________
Sink _________________________________
Tomato sauce, cheese, and sausage _________________________________
Oven _________________________________
Cardboard box _________________________________
Delivery person _________________________________
Company car _________________________________
Entrepreneur
Physical Capital
Physical Capital
Physical Capital
Labor
Human Capital
Land
Physical Capital
Land
Physical Capital
Physical Capital
Labor
Physical Capital

16. Households and Firms
Household – Person or group of people living in a residence; consumers of goods/services
Firm – business organization that uses resources (inputs) to produce a product, which it then sells

17. Product Markets
Product Markets – Houses and firms interact; producers sell their goods and services to consumers
Ebay, Amazon, the mall, McDonalds, Babies R Us, etc.
Households are buyers of goods and services
Firms are sellers of goods and services

18. Factor Markets
Factor Markets – the markets where productive resources (F.O.P) are bought and sold
Labor - Firms (businesses) hire workers and pay them salaries
Land - Purchase/rent land
Capital - Use money from households (spending,investment, etc) to purchase capital goods

19. Circular-Flow Diagram
Circular-flow diagram – visual model of a free market economy simplified into households and firms communicating in the factor and product markets
Shows how dollars and stuff flows in an economy from households to firms and vice versa.

20. Product Market Factor Market
Circular Flow Model - shows the flow of money and inputs/outputs from and to firms and households in a market economy
Consumer Spending
Business Revenue
Product Market
Consumer Goods and Services Purchased
Goods and Services (outputs sold
Households
Firms
Land, Labor, Capital, Entrepreneurs
Inputs for production
Factor Market
Income, Wages, Salaries
Payments for the F.O.P

22. Daily Assignment - Circular Flow Model of Economic Activity
Consumer Spending 1. _________________________
Business Income
_________________________
Product Market
Goods Purchased 1. ______________________________
2. _______________________________
Goods Offered 1. ___________________________
2. ___________________________
Household
________________________
Firm Firm 1. _____________________________
Firm 2. _____________________________
Inputs for Production
1. ___________________________
Factor of Production Offered 1. ___________________________
Factor Market
Weekly Income 1. __________________
Payments for F.O.P
1. _________________

23. Circular Flow Model of Economic Activity
Consumer Spending 1. _________________________
Business Income
_________________________
9.49
9.49
Product Market
Goods Purchased 1. ______________________________
Goods Offered 1. ___________________________
2. ___________________________
3.___________________________
Fajitas
Tacos
Burritos Fajitas
Household
________________________
Firm Firm 1. _____________________________
Firm 2. _____________________________
Elisa
Marcella
Cilantros
Books a Million
Input for Production
_________________________
________________________
Factor of Production Offered 1. ___________________________
Stockers
Coffee Sellers
Cashiers
Labor/Salesperson
Factor Market
Payments for F.O.P
________________
Weekly Income 1. __________________
200
3000- Lease
2200 – Electric
400 - Water

24. Circular Flow Model of a Mixed Economy
Consumer Spending/Investing
Business Income/Revenue
Product Market
Goods and Services Sold
Goods and Services Purchased:
Taxes
Taxes
Households
Expenditures
Expenditures
Firms
Land, Labor, Capital, Entrepreneur
Inputs for Production (F.O.P.)
Taxes
Taxes
Factor Market
Income to Households/Individuals
Payment for F.O.P. – Wages, rent, capital goods

25. Production Possibilities Frontier Model
PPF Model – shows/illustrates the possible combinations of output that can be produced given the productive resources available
Used to visually represent tradeoffs and opportunity cost
Good A A B C
Good B

26. Production Possibilities Frontier Activity
Round
Links
Smiles 1 2 3 4 5
Materials for each student:
8 sheets of 8 1/2 x 11 paper 1 roll tape 1 pair scissors 1 pencil or pen
Conducting the experiment:
For each round, students begin with 16 strips, 16 rectangles, a pen, a roll of tape, and a pair of scissors.
You will have 4 minutes of production time for each round.
Round 1: Make only links (maximum 32).
Round 2: Make only smiles (maximum 32).
Round 3: Make half links and half smiles (16/16)

27. Reminders
Quick quizzes, Questions for Review and Problems and Application’s due Tuesday night, 1-17 by 9 pm (answers will be posted after 9).
Chapter 2 Test Wednesday, 1-18.
Homework and Youtube videos due on Wednesday, 1-18 included in manilla folder.
Prequiz – Due Thursday, 1-19 at 11:45am

28. Production Possibilities Frontier Activity Reflection Questions
What resources were scarce?
What was the opportunity cost of producing all smiles?
What was the opportunity cost of producing all links?
How did you increase efficiency?
When did you experience underutilization/inefficiency?
What allowed for growth?
How does this relate to the real world?

29. Production Possibilities Frontier Model
Individual PPF – Individual tradeoffs
Constant opportunity cost - Linear shape of the curve represents a perfect/proportional tradeoff between two goods
Work A
1 Hour B
30 Min
30 Min C
Play
1 Hour

30. Production Possibilities Frontier Model
Society’s PPF – social tradeoffs
Shape of the curve is generally bowed outwards
Law of increasing opportunity cost - as production increases, the cost to produce an additional unit of that product increases as well.
Some resources are specialized to only efficiently produce one product so using those specialized resources on a different product is inefficient

31. 30 29 25 10

33. Production Possibilities Model
What is the PPC Model?
PPC Model – shows/illustrates the possible combinations of goods and services that can be produced by a single nation, firm or individual given the productive resources available
What does it show?
That nothing is free and that everything has an opportunity cost
If society wants more of one thing then it must give up something in return
Used to visually represent opportunity cost

34. Production Possibilities Model
Quantity of
Computers
Produced
What basic economic concepts can it be used to model?
Scarcity
Tradeoffs
Opportunity cost
Economic growth
Efficiency
Unemployment F
Production
Possibilities
Frontier
1,000
3,000 A
2,200 B
2,000
600
700
1,000
300 E
Quantity of
Cars Produced

35. Production Possibilities Curve
Efficiency – using resources in such a way as to maximize the production of goods and services *
Points along the curve, (a – c) *
Efficiency

36. Underutilization (Inefficiency)
Underutilization – using fewer resources than an economy/business is capable of; inefficient use of resources
Points inside the curve, d (inefficient use of resources)
Underutilization /Inefficiency

37. Growth
Growth (future technology) – the change in ability to produce, reflects a change in the curve; Currently unattainable level of production
New frontier, point e, (usually as a result of new technology)
Growth

38. Basics of the production possibilities frontier model
Unattainable/Economic Growth C F
1,000 A
Frontier /Efficiency B
Underutilization /Inefficiency D E

39. Shifts in the PPF Increase in available resources
Decrease in available resources

40. PPC Activity Good A Good B 12 1 10 2 8 3 6 4 5 Good B Good A 12 10 8 612 1 10 2 8 3 6 4 5
Good B
Good A
Answer the following questions based on the model above:
The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.
The opportunity cost of increasing production from Good A from one unit to two units is the loss of __________ unit (s) of Good B. The total loss is ____
The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

41. Review - Guns or Butter PPF
How many guns can be produced when no butter is produced? ________
How much butter can be produced when no guns are produced? _______
The opportunity cost of increasing the production of guns from 0 to 40 units is ________ units of butter.
What would it say about this society if the production decision was to produce at the (20, 45) point; assuming that it takes 30 units of butter to provide basic foodstuffs to society and 40 units of Guns to protect their society? ___________________________________________________
This society cares more about military than providing consumer goods for the people

42. PPF Exercise A
200 B
180
160
140 C
120
100 25 55 60 D 80 60 40 20 E
Along the curve (frontier)
Inside the curve
Outside the curve

43. PPF Exercise
True
False

44. Shoes A 40 35 B 30 25 C 20 15 D 10 5 E
CD Players

45. Due Today 8-30 Junk!!! Chapter 1 - 2 Chapter 1 Notes Chapter 2 Notes
PPF Practice 1
PPF Practice 2
Circular Flow Practice Review
Junk!!!

46. Agenda Short Answers Prequiz – Chapter 3 Prequiz A
Due Wednesday – Online Video Quiz “Comparative and Absolute Advantage”

47. Include on your Test Name Date Class Period ID: A, B or C
Chapter 2 Test
Junk!!!

48. Extra Credit
Write a positive statement about the benefits of investing in human capital.
Write a normative statement about the government’s role in the economy.
Explain your interpretation of the political cartoon:
Illustrator’s message
Clues (people, symbols etc.)
Do you agree or disagree?