What did you do to earn some money this summer? Let’s talk about it…. What did you do to earn some money this summer? Did you make as much as you wanted to?

What did you do to earn some money this summer? Let’s talk about it…. What did you do to earn some money this summer? Did you make as much as you wanted to? NEEDED

Focus Activity When you hear the word ECONOMICS, what are the first ten words that you think of?

Chapter 1 What is Economics?

Economics: “The study of how people seek to satisfy their needs and wants by making choices.” People cannot have everything they NEED and WANT.

Needs vs. Wants Needs: things NECESSARY for survival Wants: things we desire but are NOT ESSENTIAL to survival

I need air, food and shelter to survive. Needs vs. Wants Give me some examples of your NEEDS and WANTS I need air, food and shelter to survive.

Decision Time… People in the business world have to decide how many people to employ and how much to produce.

The things people do… Because people act individually, in groups (such as businesses), and through governments, economists study each of these groups. And this includes your specific age group! How many groups to you belong to?

People make choices because of Scarcity Limited quantities of resources to meet unlimited wants Shortage A situation in which a good or service is unavailable

Scarcity IS NOT THE SAME AS Shortage Economics is about solving the problem of scarcity

Shortages can be temporary or long-term. Shortages occur when producers will not or cannot offer goods or services at the current prices. Shortages can be temporary or long-term.

What impact will the drought in the Midwest have on our economy? Let’s talk about it…. What impact will the drought in the Midwest have on our economy? What have you seen so far?

People make choices because of Scarcity Limited quantities of resources to meet unlimited wants Shortage A situation in which a good or service is unavailable

Factors of Production What are they?

Factors of Production Land All natural resources that are used to produce goods and services. Labor Any effort a person devotes to a task for which that person is paid. Capital Any human-made resource that is used to create other goods and services.

Factors of Popcorn Production

Quick Assessment What is the difference between a shortage and scarcity? (a) A shortage can be temporary or long-term, but scarcity always exists. (b) A shortage results from rising prices; a scarcity results from falling prices. (c) A shortage is a lack of all goods and services; a scarcity concerns a single item. (d) There is no real difference between a shortage and a scarcity.

Quick Assessment What is the difference between a shortage and scarcity? (a) A shortage can be temporary or long-term, but scarcity always exists. (b) A shortage results from rising prices; a scarcity results from falling prices. (c) A shortage is a lack of all goods and services; a scarcity concerns a single item. (d) There is no real difference between a shortage and a scarcity.

Quick Assessment What is the difference between a shortage and scarcity? (a) A shortage can be temporary or long-term, but scarcity always exists. (b) A shortage results from rising prices; a scarcity results from falling prices. (c) A shortage is a lack of all goods and services; a scarcity concerns a single item. (d) There is no real difference between a shortage and a scarcity.

Quick Assessment 2. Which of the following is an example of using physical capital to save time and money? (a) hiring more workers to do a job (b) building extra space in a factory to simplify production (c) switching from oil to coal to make production cheaper (d) lowering workers’ wages to increase profits

Opportunity Costs Does every decision you make involve trade-offs? How can a decision-making grid help you identify the opportunity cost of a decision? How will thinking at the margin affect decisions you make?

Trade-offs and Opportunity Cost Trade-offs are all the alternatives that we give up whenever we choose one course of action over others. The most desirable alternative given up as a result of a decision is known as opportunity cost. All individuals and groups of people make decisions that involve trade-offs.

The Decision-Making Grid Economists encourage us to consider the benefits and costs of our decisions.

The Decision-Making Grid Economists encourage us to consider the benefits and costs of our decisions. 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 Zach’s Decision-making Grid

Thinking at the Margin When you decide how much more or less to do, you are thinking at 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

Give me some examples of “Thinking at the Margin” Now it’s your turn… Give me some examples of “Thinking at the Margin”

What does the expression “Guns or Butter” have to do with trade-offs? Think about it…. What does the expression “Guns or Butter” have to do with trade-offs?

Quick Assessment 1. Opportunity cost is (a) any alternative we sacrifice when we make a decision. (b) all of the alternatives we sacrifice when we make a decision. (c) the most desirable alternative given up as a result of a decision. (d) the least desirable alternative given up as a result of a decision.

Quick Assessment 1. Opportunity cost is (a) any alternative we sacrifice when we make a decision. (b) all of the alternatives we sacrifice when we make a decision. (c) the most desirable alternative given up as a result of a decision. (d) the least desirable alternative given up as a result of a decision.

Quick Assessment 2. Economists use the phrase “guns or butter” to describe the fact that (a) a person can spend extra money either on sports equipment or food. (b) a person must decide whether to manufacture guns or butter. (c) a nation must decide whether to produce more or less military or consumer goods. (d) a government can buy unlimited military and civilian goods if it is rich enough.

Quick Assessment 2. Economists use the phrase “guns or butter” to describe the fact that (a) a person can spend extra money either on sports equipment or food. (b) a person must decide whether to manufacture guns or butter. (c) a nation must decide whether to produce more or less military or consumer goods. (d) a government can buy unlimited military and civilian goods if it is rich enough.

Quick Assessment 2. Economists use the phrase “guns or butter” to describe the fact that (a) a person can spend extra money either on sports equipment or food. (b) a person must decide whether to manufacture guns or butter. (c) a nation must decide whether to produce more or less military or consumer goods. (d) a government can buy unlimited military and civilian goods if it is rich enough.

Entrepreneurs Ambitious leaders who combine land, labor, and capital to create and market new goods and services.

It’s all about Greed! “The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.” Milton Friedman As we move along, here is Part 1 of “Greed” by John Stossel As we move along, here is Part 2 of “Greed” by John Stossel

LeBron James Lisa Leslie

LeBron James $53 Million Lisa Leslie $6 Million

LeBron James $53 Million $6 Million Lisa Leslie

IT’S ALL ABOUT TRADE-OFFS Individuals: work or free time Students: study or sleep Farmers: grow wheat or corn Merchants: sell shoes or hats

OPPORTUNITY COST When asked how much something costs, people usually answer by giving its price, or money cost. Economists usually measure cost differently, using what they call opportunity cost, defined as the value of the next best alternative opportunity that is given up in order to do something.

OPPORTUNITY COST Here's how to calculate it. When considering a choice, ask yourself three questions: 1. What alternative opportunities are there? 2. Which is the best of these alternative opportunities? 3. What would I gain if I selected my best alternative opportunity instead of the choice I'm considering? The answer to the third question is the opportunity cost of the choice.

IT’S TIME TO APPLY SOME CONCEPTS… OPPORTUNITY COST

Go to College right away Take a year off after grad. DECISION MAKING GRID Alternatives Go to College Take a year off Benefits ? Decision Go to College right away Take a year off after grad. Opportunity Cost Benefits forgone

? THINKING AT THE MARGIN Options Benefit Opportunity Cost 1 summer off 1 semester off 1 year off

PRODUCTION POSSIBILITIES CURVES Graphs that show alternative ways to use an economy’s resources

PRODUCTION POSSIBILITIES CURVES The output mix that produces only Good A and zero Good B The output mix that produces only Good B and zero Good A

Efficiency Efficiency means using resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently.

PRODUCTION POSSIBILITIES CURVE

The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

The Four Factors of Production Classify the Factors of Production in the following scenario: You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk. The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.