1 Prisoner A stays silentEach serves 1 year Prisoner A: 3 years Prisoner B: goes free Prisoner A betrays Prisoner A: goes free Prisoner B: 3 years Each serves 2 years Prisoner B stays silentPrisoner B betrays

2 Ch. 1 - What is Economics? Sect. 1 Economics - The study of how we satisfy our needs and wants by making choices Scarcity - Limited goods and services to meet unlimited wants - forces us to make choices Factors of Production - The resources used to make all goods and services

3 Land - All “natural resources” used to produce goods and services - includes land, water, forests, coal, iron ore, livestock, etc.

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5 Land - All “natural resources” used to produce goods and services - includes land, water, forests, coal, iron ore, etc. Labor - The effort of workers for which they are paid

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7 Land - All “natural resources” used to produce goods and services - includes land, water, forests, coal, iron ore, etc. Labor - The effort of workers for which they are paid Capital - Resources used to make other goods and services Physical - Man made objects used to make other goods and services

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9 Land - All “natural resources” used to produce goods and services - includes land, water, forests, coal, iron ore, etc. Labor - The effort of workers for which they are paid Capital - Resources used to make other goods and services Physical - Man made objects used to make other goods and services Human - The knowledge, skills, and experience of a worker

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11 Land - All “natural resources” used to produce goods and services - includes land, water, forests, coal, iron ore, etc. Labor - The effort of workers for which they are paid Capital - Resources used to make other goods and services Physical - Man made objects used to make other goods and services Human - The knowledge, skills, and experience of a worker

12 Entrepreneurs - People who take the risk to assemble the factors of production to make goods and services

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14 Entrepreneurs

15 Freezer, Tables, Mixing Machines - ???? Water, Fruit - ???? Cashier, Food prep worker - ???? Knowledge of business and making of yogurt - ????

16 Entrepreneurs - People who take the risk to assemble the factors of production to make goods and services Section 2 - Opportunity Cost Trade - offs - The act of giving up one benefit to gain another benefit

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18 Entrepreneurs - People who take the risk to assemble the factors of production to make goods and services Section 2 Trade - offs - The act of giving up one benefit to gain another benefit Opportunity cost - The next best alternative given up is the opportunity cost of your decision

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21 Opportunity Cost

22 Entrepreneurs - People who take the risk to assemble the factors of production to make goods and services Section 2 - Opportunity Cost Trade - offs - The act of giving up one benefit to gain another benefit Opportunity cost - The next best alternative given up is the opportunity cost of your decision

23 Marginal Cost - The extra cost of one additional unit Marginal Benefit - The extra benefit of one additional unit - as long as the marginal benefit exceeds the marginal cost, it pays to add more units

24 Marginal Cost - The extra cost of one additional unit Marginal Benefit - The extra benefit of one additional unit - as long as the marginal benefit exceeds the marginal cost, it pays to add more units Section Three - Production Possibilities Production Possibilities Curve - A graph showing alternative ways to use productive resources - the line is known as the Production Possibilities Frontier

0 Product A Product B Production Possibilities Frontier

26 PPC

27 Marginal Cost - The extra cost of one additional unit Marginal Benefit - The extra benefit of one additional unit - as long as the marginal benefit exceeds the marginal cost, it pays to add more units Section Three - Production Possibilities Production Possibilities Curve - A graph showing alternative ways to use productive resources - the line is known as the Production Possibilities Frontier

28 Efficiency - Using resources in the best way to maximize the output of goods and services - producing along the PPC line

0 Product A Product B A A B C

30 Efficiency - Using resources in the best way to maximize the output of goods and services - producing along the PPC line Growth - When a country’s production capacity increases - the PPC will shift to the right

0 Product A Product B A A B C New Production Possibilities Frontier

32 Efficiency - Using resources in the best way to maximize the output of goods and services - producing along the PPC line Growth - When a country’s production capacity increases - the PPC will shift to the right Cost - The PPC shows the “opportunity cost” of producing more or less of each item

33 Ch. 2 Economic Systems Sect. 1 - Three Economic Questions 1) What Goods and Services Should be Produced - Society must decide what to produce to satisfy the needs and wants of its people 2) How Should they be Produced - What resources should be devoted to what production 3) Who Consumes the Goods and Services - How society distributes goods - based on societies values

34 Economic Goals - A society’s values determine the importance of each goal Efficiency - Because resources are scarce, we try to maximize production Freedom - Americans value economic freedom but must be balanced against other values Security - Many governments try to provide basic needs through “safety net” programs

35 Equity - Economic “fairness” - rules should ensure that everyone gets a fair deal Growth - A nation’s economy must grow to raise it’s standard of living - “innovation” leads to economic growth

36 Innovation

37 Equity - Economic “fairness” - rules should ensure that everyone gets a fair deal Growth - A nation’s economy must grow to raise it’s standard of living - “innovation” leads to economic growth Section 2 - The Free Market Economic Market - An arrangement that allows buyers and sellers to exchange goods and services - markets eliminate the need for us to be self-sufficient

38 Specialization - Producing a limited number of goods and services - allows us to use resources in the most efficient way Free Market Economy - Individuals and businesses own the factors of production and make decisions that answer the three economic questions Households and Firms - Participants in a free market economy - “Households” are the people living in a residence that consume goods and services - “Firms” are organizations that use resources to produce goods and services

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40 Circular Flow

41 Specialization - Producing a limited number of goods and services - allows us to use resources in the most efficient way Free Market Economy - Individuals and businesses own the factors of production and make decisions that answer the three economic questions Households and Firms - Participants in a free market economy - “Households” are the people living in a residence that consume goods and services - “Firms” are organizations that use resources to produce goods and services

42 Self-Interest - In all economic transactions individual personal gain is the motivating factor Competition - The struggle among producers for consumer dollars Incentive - What motivates consumers and producers to behave in a certain way

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44 Incentives

45 Self-Interest - In all economic transactions individual personal gain is the motivating factor Competition - The struggle among producers for consumer dollars Incentive - What motivates consumers and producers to behave in a certain way Invisible Hand Self interest and competition make the economic market work without any outside influence - described by Adam Smith in “The Wealth of Nations” (1776)

46 Section 3 - Centrally Planned Economies Command Economy - The govt. rather than individual producers/consumers owns the factors of production and decides what & how much, is produced Socialism - Economic system where the govt. controls the economy to distribute the wealth and provide equally for all citizens Communism - Usually an authoritarian govt. that controls all resources and makes all economic decisions

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48 Section 4 - Mixed Economies Mixed Economy - Economic system that combines free markets and govt. involvement - (United States) Laissez Faire - The free market economy should be left alone with no govt. intervention

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51 Mixed Economy

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53 Section 4 - Mixed Economies Mixed Economy - Economic system that combines free markets and govt. involvement - (United States) Laissez Faire - The free market economy should be left alone with no govt. intervention

54 The End