Chapter 1 What is Economics? MASON EDUCATION

Table of Contents 1. Bell Journal 2. Ch.1 Breakdown 3. Ch. 1 Vocab 4. Lecture Notes 5. Section Assessments

Bell Journal  Use the term Scarcity in a complete and relevant sentence

Section 1 Scarcity and the Factors of Production Scarcity & the Factors of Production Focus  People, businesses and governments must choose among limited or scarce resources. Economics describes how people seek to satisfy their needs and wants by choosing among many alternatives.

Scarcity and Choice  People cannot have everything they need and want  What is a need? Air, food & shelter (survival)  What is a want? Cars, jewels & phones  We must consider our options and decide which choice will fill our needs best.

What is economics?  The study of how people seek to satisfy their needs and wants by making choices  Who makes economic choices (Individuals/Businesses/Governments)  Why do we have to choose? SCARCITY of goods and services!  Goods and services (physical objects & actions or activities performed for another)

Defining scarcity  All of the goods and services produced are scarce!  Economics is about solving the problem of scarcity!

Scarcity vs. shortages  Shortage based on when producers refuse to offer current $  Shortage factors ($, season, wars)  Scarcity always exist: Human Needs & wants>Worlds resource supply  All Resources are scarce!!!

Factors of Production  Resources used to make all goods/services are factors of production  What are the Factors of production?  Land, Labor, Capital (LLC) & entrepreneurs

Factors of Production Read and Define each of the factors of production ( listed below pg. 4 & 6)  Land:  Labor:  Physical & human Capital:  Entrepreneurs: Name the entrepreneur of your favorite product & the product

Section 2 Opportunity Cost Opportunity Cost Focus:  All human decisions involve trade-offs. The next best alternative to any choice is called an opportunity cost. Decision-making grids can make it easier to identify the trade-offs and opportunity cost of a decision.

What are tradeoffs?  All the alternatives that we give up whenever we choose one course of action over another are Trade Offs!  Who makes tradeoffs? Individuals/businesses/Governments

Defining Opportunity Cost? Using a Decision-Making Grid  Using a DMG can help you determine if you are willing to accept the opportunity cost of a choice you are about to make.  MC = MB Marginal Cost = Marginal Benefit  By recognizing what we are sacrificing, we can decide whether the decision is worth it. “Choosing is refusing” Economist anonymous

What’s important to you? MC = MB

the margin: MC = MB  One more characteristic in addition to opportunity cost is the Margin!  Adding/subtracting one more unit to your opportunity cost (ex. min, dollar, lbs.)  Deciding how much more or less to do, you are the margin

the Margin (Options)

Making a the Margin: MC = MB Decision Making vs.  All or nothing (alternatives) vs. the Margin (options) Study or sleep=Decision Making or Wake up early &

Cost and the margin  Compare opportunity cost vs. margin  Examples for  Individuals: _______  Business: __________  Government: _________

the Margin  This decision making process is called cost/benefit analysis (sacrifice v. Gain)  Once opportunity cost outweighs benefits no more units should be added

Section 3: Production Possibilities Curve  Production Possibilities focus:  Decisions about which goods and services to produce affect each of us every day. Production possibilities graphs can help us examine the opportunity cost of these decisions.

Production possibilities  1+1=? What are the possibilities?  A production possibilities curve (ppc) or graph shows the alternative ways to use an economy’s productive resources.

Drawing a PPC 1. Decide the good/services to examine ex. Shoes or watermelons 2. Label your vertical axes with a G or S 3. Label your horizontal axes with a G or S 4. Label your output amount on the axes for vertical/horizontal axes 5. Title your graph

Drawing a PPC 1. Using your data plot points on the graph & connect them to draw a graph curve/line 2. The curve/line represents the Production possibilities frontier (PPF) 3. Any spot on the PPF represents resources being produced at maximum combination

Trade Offs  Each point on the PPF reflects a tradeoff  Shoes>Watermelons or Shoes<watermelons  Using factors of production to make one product means that fewer resources are left to make something else

Efficiency, growth and cost  Production Possibilities Graph measures a economy’s efficiency, growth/loss and opportunity cost  Production Possibilities efficiency?  Resources being maximizing production. Anything else causes underutilization of resources  Any point inside the PPF indicates underutilization

Production Possibilities Growth  A PPC reflects a group’s current production possibilities  When an economy grows the entire PPC has shifted outward to the right  When a country’s production capacity decreases the curve shifts to the left

Production Possibilities Cost  Cost=Opportunity cost: What are we giving up?  PPGs help show the opportunity cost involved in a decision  PPGs help show the effects of increasing cost.

Resource and technology  Both human & physical capital reflect a vital ingredient- technology! Economist must assess each country’s level of technological know-how.  A country’s production possibilities depend on both its technological level and the resources it has available.