What is Economics?! Economics – the study of how people make choices to satisfy their needs and wants. Need – Something people MUST have to survive, like air, food, and shelter. Want – Something that people would LIKE to have but is not necessary for survival. Scarcity – Limited resources to meet unlimited desires. Shortage – Occurs when a good or services is CURRENTLY unavailable. Happens when people have trouble supplying goods and services at current prices.

What is Economics?! Entrepreneurs – People who put together land, labor, and capital to create a new business. Factors of Production Land – natural resources like coal, water, and forests Labor – work for which people receive pay Capital – a human-made resource used to produce other goods and services. Human Capital – the knowledge and skills people gain from study and experience Physical Capital – Objects made by people, like buildings and tools.

Opportunity Cost Chapter 1, Section 2

Trade-offs and Opportunity Cost All people make decisions that involve trade-offs Trade-offs are all alternatives we give up when we make decisions Opportunity Cost is the most desirable alternative we give up

Karen’s Decision-making Grid Benefits Enjoy more sleep Have more energy during the day Better grade on test Teacher and parental approval Personal satisfaction Decision Sleep late Wake up early to study for test Opportunity cost Extra study time Extra sleep time Benefits forgone Wake up early to study Alternatives Karen’s Decision-making Grid

Thinking on the Margin Many decisions involve adding one unit or subtracting one unit Such as one minute or one dollar You decide how much more or how much less to do

Thinking on the Margin Options 1st hour of extra study time 2nd hour of extra study time 3rd hour of extra study time Benefit Grade of C on test Grade of B on test Grade of B+ on test Opportunity Cost 1 hour of sleep 2 hours of sleep 3 hours of sleep

Production Possibilities Curves Chapter 1 Section 3

Production Possibilities A production possibilities graph show alternative ways that an economy can use it resources The production possibilities frontier is the line that shows the maximum possible output for that economy

Production Possibilities Curve Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 Production Possibilities Graph What is the opportunity cost of the decision shown here?

Watermelons (millions of tons) Shoes (millions of pairs) What is the opportunity cost of choosing to produce the combination of goods shown at point A instead of point B? Watermelons (millions of tons) Shoes (millions of pairs) 25 20 15 10 5 Production Possibilities Graph

Shoes (millions of pairs) Watermelons (millions of tons) Efficiency Shoes (millions of pairs) 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph Using resources in such a way as to maximize the production of goods If an economy is operating efficiently, the points will be on the PPF

Shoes (millions of pairs) Watermelons (millions of tons) Growth Growth is when more resources become available of if technology improves It causes the economy to grow The entire PPF will shift to the right Inefficiency is shown by a point inside the PPF Shoes (millions of pairs) 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph How does a society benefit when it invests money in the development of new technologies?

Cost The Production Possibilities Graph shows what happens when going from item to the next The movement from one point to the next will show the cost

The Law of Increasing Costs

The Law of Increasing Costs

The Law of Increasing Costs According to this diagram, what is the cost of increasing watermelon production?