1. What is Economics?
Define Economics and the importance of making choices
Compare Scarcity and shortage
Identify key terms: land, labor and capital.
The role of entrepreneurs

2. What is Economics?
Economics is the study of how people seek to satisfy their needs and wants by making choices OR
How people look to fill their unlimited wants with limited resources.
Need: Air, food, shelter, i.e. things necessary for survival
Want: Something desired but not necessary for survival

3. Goods - physical objects
Services - Actions or activities that someone performs for another
While our wants may be unlimited, there are only so many resources available to us and to create goods and services.

4. Shortages come and go, but scarcity always exists….Why?
Scarcity implies limited quantities of resources to meet unlimited wants.
Sooner or later a limit is always reached
Scarcity and shortage are not the same thing
Shortages come and go, but scarcity always exists….Why?
Goods and services are made from resources that are scarce

5. Can be short term or long term
Shortage: Producers cannot or will not offer goods or services at current prices
Can be short term or long term
What could cause a shortage?
War
Changes in population
Changes in consumer tastes
Holidays

6. Factors of Production
Resources that are used to make all goods and services.
Land
Labor
Capital

7. Land
All natural resources that are used to produce goods and services.
Materials found in nature
Fertile land for farming
Products in or on the land
Coal, water, forests, etc
Labor
Effort that a person devotes to a task for which that person is paid
Anything you do and get paid for it

8. Capital
Any human made resource that is used to produce other goods and services.
Two types:
Physical Capital (capital goods) - buildings and tools
Saves time and money
Increases productivity
Other benefits
Extra time
More knowledge
Time to do other things

9. Human Capital
The knowledge and skills that a person acquires through education and experience
Economies require both human and physical capital to produce goods and services

10. Entrepreneur
Ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services
They take risks and develop new ideas, start new businesses, create new industries and fuel economic growth
Could be anyone

11. CH 1.2 - Opportunity Cost Why is every decision a trade off?
Identify the trade offs and opportunity costs using a decision making grid
How do people make decisions by thinking on margin

12. Trade offs Everyone makes decisions that involve trade offs
All the alternatives we give up whenever we choose one one course of action instead of another
Trade offs in business
How businesses choose to use land, labor, and capital resources

13. Maybach Exelero $ 8M ?

14. Opportunity Costs
Opportunity Cost is the most desirable alternative given up when a decision is made Or
The value of the lost choices
**Must be a desirable choice**

15. Guns or Butter
If a country decides to use more resources to make military items, it has less resources available to make consumer goods and vice versa
Why?….Resources are limited
More guns = less butter. Butter is the opportunity cost

16. Decision Making Grids Alternatives Benefits Decision Opportunity Cost
Benefits Forgone

17. Lose three hours of sleep
Thinking at the margin: instead of thinking about a decision as a whole, think about it in terms of units.
Study time: 1 hour of studying = C = 1 less hour of sleep. 2 hours = B = 2 less hours, 3 hours = B+ = 3 less hours.
Improvement between 2 and three hours is not enough to sacrifice the extra hour of sleep.
Cost does not equal the benefit. Take the B
Once the costs outweigh the benefits, no more units should be added.
1 Hour of studying C
Lose 1 hour of sleep
2 hours of studying B
Lose two hours of sleep
3 hours of studying B+
Lose three hours of sleep

18. CH 1.3 Production Possibilities Graph
What do they show?
What can we learn from them?

19. Economists use graphs to analyze the choices and trade offs people make
Production possibilities graphs (PPG) show alternative ways to use resources.
The axes show categories of goods and services, or pairs of specific goods and services

20. Shoes or Watermelons
Shoes
Watermelons

21. Shoes and Watermelons 15 8 14 12 18 9 20 5 21 Shoes Watermelons Shoes
(Millions of tons)
Shoes
(Millions of pairs) 15 8 14 12 18 9 20 5 21
Shoes
Watermelons

22. Any point on the graph shows the maximum combination of each of the two products
Why is there an inverse relationship?
Land, Labor and Capital
Making one product leaves less resources to make others

23. By producing the maximum of each product the economy is operating efficiently.
Efficiency = using resources in such a way that maximizes the output of goods and services
What causes inefficiency?
Lay offs, broken machinery
Any point inside the line in the production possibilities frontier would be underutilization or inefficient

24. What are some limitations to the PPF?
It only shows what is happening right now
Exact number of people
Exact number of resources
These are constantly changing
Any change in these numbers will affect the slope of the graph

25. How do these changes affect production in a positive way
More labor = Produce more
New technology or inventions
This shifts the curve to the right

26. Shoes and Watermelons 15 8 14 12 18 9 20 5 21 Shoes Watermelons Shoes
(Millions of tons)
Shoes
(Millions of pairs) 15 8 14 12 18 9 20 5 21
Shoes
Watermelons

27. What causes a PPF to shift to the left, or an economy to decline in production
Loss of land
Population
Unhealthy, less education, Aging

28. Shoes and Watermelons 15 8 14 12 18 9 20 5 21 Shoes Watermelons Shoes
(Millions of tons)
Shoes
(Millions of pairs) 15 8 14 12 18 9 20 5 21
Shoes
Watermelons

29. Opportunity costs and PPF
Law of increasing costs: As production switches from one item to another, more and more resources are sacrificed to increase production of that item
1 million tons of watermelons = 5 million pairs of shoes
Watermelons
(Millions of tons)
Shoes
(Millions of pairs) 15 8 14 12 18 9 20 5 21

30. Law of increasing costs
Watermelons
(Millions of tons)
Shoes
(Millions of pairs) 15 8 14 12 18 9 20 5 21 +8 +6 +4 +2 +1 -1 -2 -3 -4 -5

31. Law of Increasing Costs
Factory F a r m

32. Resources and Technology
A country’s Production Possibilities depend on both resources available and technological level
Many different ways to produce watermelons and shoes
Better technology increases the amount that an economy can produce
Plant, harvest, sew by hand
Use of animals and hand operated looms
Tractors and harvesting equipment, or sewing machines other textile producing machinery