Economics Ms. Curran August 17

Economics The study of how individuals, families, business, and societies use their limited resources to fulfill their unlimited wants

2 Types: Micro vs. Macro Microeconomics – The branch of economic theory that deals with behavior and decision making by small units such as individuals and firms. Macroeconomics – The branch of economics theory dealing with economy as a whole and decision- making by large units such as governments.

Need vs Wants Need – something like air, food, or shelter that is necessary for survival Want – an item that we desire but that is not essential to survival Example….

Scarcity A basic economic problem that exists when there are not enough resources to meet human wants. NOT a temporary shortage of something. It goes on… and on… and on… and on… Don’t mix up with shortage More will come! Ex: supermarket running out of pizza rolls

Goods & Services Goods – tangible (physical) items that people buy such as medicine, clothing, or computers Services – work that one person performs for another for payment What are some services that you use? Consumers buy g&s Producers makes g&s

The Three Economic Questions Scarcity leads to three economic questions… What will be produced? A society must decide the mix of goods and services it will produce. How will it be produced? Using scarce resources in the most efficient way to satisfy society’s wants. For whom will it be produced? How goods and services are distributed among people in society. Everyone gets and equal share? How much are you willing to pay?

4 Factors of Production Factors of Production – the economic resources needed to produce goods and services 4 broad categories… All with the same thing in common… Supply is limited!

4 Factors of Production Land – all natural resources found on or under the ground that are used to produce goods and services Labor – all the human time, effort, and talent that go into the making of products

4 Factors Continued Capital – all the resources made and used by people to produce and distribute goods and services Physical Capital – a producer’s physical resources; i.e. tools, machinery, factories Human Capital – the knowledge and skills gained through experience Entrepreneurship – the combination of vision, skill, ingenuity, and willingness to take risks that are needed to create and run new businesses

Ms. Curran January 6 August 21 Economics Ms. Curran January 6 August 21

Factors of Production Activity You & and partner will be responsible for deciding what Land, Labor and Capital may be needed for each of the products listed on your sheet.

Economics Ms. Curran January 9 BW: Pretend you have traveled into the future. What is something you would like to produce or provide? Answer the 3 economic questions for your product/service.

Opportunity Cost This one or that one?

Choices What shapes the economic choices people make? Incentives – benefits offered to encourage people to act in certain ways Utility – the benefit or satisfaction gained from the use of a good or service Economize – make decisions according to what you believe is the best combination of cost and benefit

TANSTAAFL “There Ain’t No Such Thing As A Free Lunch.” Everything costs something

Opportunity Cost Opportunity Cost – the value of the next-best alternative Trade-off – alternative people give up when they make choices Cost-benefit analysis – weighing the benefits of an action against its costs

Example

Making Choice Chart

Economics Ms. Curran August 23 BW: Please define opportunity cost in your own words and give an example.

Production Possibilities

Possibilities! Economic model – simplified representations of complex economic activities, systems, or problems, that help clarify trade- offs. Production Possibilities Curve (PPC) – shows the impact of scarcity on an economy Increases a company’s efficiency But how? By showing the maximum number of goods or services that can be produced using limited resources

PPC – What is it? PPC has 3 important economic concepts: Scarcity affects production possibilities – people choose what to produce. Trade-offs are made with any choice Any choice has opportunity cost.

PPC Assumptions Based on four assumptions: Resources are fixed – there is no way to get more land, labor, capital, or entrepreneurship. All resources are being used – economy is at full production Only two things can be produced – one variable on each axis Ms. Curran says this makes graphing a lot easier… and we’re OK with that. Technology is fixed – no technological advances will occur.

Example Look at the pens Company has options

Learning from PPC Efficiency – condition in which economic resources are being used to produce the max amount of goods and services Underutilization – condition in which economic resources are not being used to their full potential On the graph Point below the curve = underutilization Point above curve = impossibility

The Production Possibilities Curve Before we graph…. We must chart!

Production Possibilities Curve: Bread vs. Muffins 12 10 8 Loaves of Bread 6 4 2 10 20 30 40 50 60 80 90 100 110 Bran Muffins

Whys it Curved Law of Increasing Opportunity Cost As production switches from one product to another, increasingly more resources are needed to increase the production. This leads to an increase in opportunity cost.

Review for Test Make sure study guide is completed! Review and come in with any questions tomorrow Test Thursday 8/24