What is Economics? Chapter One

TINSTAAFL What do these letters stand for? THERE IS NO SUCH THING AS A FREE LUNCH The more a business gives away for “FREE” it must make up for by charging higher prices for other items

Free? Think of an example of a supposedly “free” item that you see everyday. Explain why the item is not really free by stating who or what actually pays for it.

Answer the question… If you could make a small change in your daily routine that would save you time and money, would you make the change? Why or why not? Define Scarcity…

Scarcity… the fundamental economic problem… …the condition that arises because society does not have enough resources to produce all the things people would like to have. Unlimited Wants SCARCITY Limited resources Is scarcity caused by a shortage of money??

Warm Up #11 - Scarcity How does scarcity affect your life? Provide several examples of items you have had to do without because limited resources could not keep up with your wants.

4 Factors of Production Resources used in the production of goods and services 1. Land 2. Labor 3. Capital 4. Entrepreneurship

LAND “gift of nature” or natural resources Resources no created by human effort Limited in supply

CAPTIAL Tools, equipment and factories used in production Financial capital- money used to buy tools and equipment for production

LABOR People with all their efforts, abilities, and skills. All people involved in production except entrepreneurs (owners) The amount of this resource can vary over time

ENTREPRENEURSHIP Entrepreneur: a risk-taker in search of profits Driving force in the American economy Their initiatives combine other 3 factors; land, labor and capital

Warm Up #13 – 9/22/14 Create a product or service… You must list one example of each factor of production you will need to create your product or service. Diamond Ring Land: Diamond Capital: diamond cutter/polisher Labor: Gemologist Entrepreneurship: Diamond distributor

Three Basic Questions… are used by society to decide how to best use limited resources What To Produce? How To Produce? For Whom to Produce?

WHAT TO PRODUCE?? Should society produce more consumer goods like clothing and food or military equipment like airplanes and submarines? GUNS v. BUTTER Society cannot produce enough for all wants so it must decide…

HOW TO PRODUCE?? Most efficient, cost effective way to produce goods/services Assembly line v. less equipment more workers Which is better?

FOR WHOM TO PRODUCE? How will produced items be allocated? Pricing, location and availability usually determine who while receive these items BMW automobile? Low-income housing? Old Navy jeans?

ECONOMICS the study of how a society produces, distributes and consumes its limited resources with unlimited wants. WARM UP #14- 9/23/14 Write a brief description of the American economic system as YOU see it using the concepts of : SCARCITY FACTORS OF PRODUCTION 3 BASIC QUESTIONS.

Trade-offs and Opportunity Costs

What’s wrong with this picture?

What’s wrong with this picture?

What’s wrong with this picture?

Trade-offs Alternative choices when spending your income or time. Alternatives CRITERIA $75 or Less? Durable? Will Parents approve? Can use any time? Several CDs yes no Concert Tix maybe Soccer Ball Jeans

Opportunity Cost The cost of the next best alternative use of money, time or resources when one choice is made rather than another. Example: based on earlier chart Chose jeans so not enough money left for next best option – soccer ball Opportunity cost of jeans was soccer ball

Warm Up #15- 9/24/14 Explain trade-off and opportunity cost in your own words and then give an example.

Create your own … Decision Making Grid Must determine 3 alternatives and total amount of money you can spend along with 2 other criteria… Alternatives Criteria $___ or less ?? 1. 2. 3. Determine your choice and the opportunity cost of your choice.

Warm Up #16 – 9/26/14 If the United States was in the midst of a large scale war, how might the government decide to allocate(use) its resources? More consumer goods (butter) or military goods (guns)? Explain your answer.

Production Possibilities Frontier A diagram representing various combinations of goods and/or services an economy can produce when all resources are fully employed. Using the same materials/resources, the company needs to decide how much production should go to boats and trucks.

Guns & Butter Example

Trucks v. Boats when all resources are fully used What three points illustrate all resources are fully used? What point shows resources under used? What point shows production greater than resources?

Opportunity Cost? Unfortunately, the company had to layoff workers. Point D represents the less number of workers…so the opportunity cost is less workers is 5 less boat per year.

Create your own… Production Possibilities Frontier for a textile company that produces jeans and t-shirts. Jeans T-Shirts 100 40 75 60 50 70 25 120

Opportunity Cost? What is the opportunity cost of increasing production of 20 more shirts? ( Hint: how many less jeans?)

Explain… How opportunity cost is involved when resources are shifted from the production of one good to another. HOMEWORK: In your notebook, create a list of 50 things you find in your home. Please diversify.

Basic Economic Concepts Chapter one Section three

Needs v. Wants Take out list of 50 items from your home and determine which items you NEED and which items are NICE to a have. What is a NEED v. a WANT? Need: basic requirement for survival Want: a means of expressing a need Ex. Food is a need but pizza is a want.

Warm Up #17 – 9/29/14 Review your Journal and be sure you have correct entries for the following warm-ups… #11- Think about a “free” item that you see everyday. Explain why this items is not really free… #12- How does scarcity affect your life? #13- List one example of each factor of production? #14- Write a brief description of the American economy using concepts of SCARCITY, FACTORS OF PRODUCTION, 3 BASIC QUESTIONS. #15- Explain trade-off and opportunity cost in your own words along with an example. #16- If US in large scale war, more guns or butter? Explain.

Economic System An organized way of providing for the wants and needs or their people Three major types of Economic systems: Traditional Economy Command Economy Market Economy

Create the chart in your notebook and use pages 33-37 to fill it in… Traditional Command Market Strengths Weaknesses 3 economic questions

Traditional Command Market Strengths -Stable , predictable and continuous -Capable of dramatic change in short time -able to adjust to change gradually -individual freedom -less gov’t interference -large variety -consumer satisfaction Weaknesses -Discourages new ideas -Stagnation and lack of progress -Does not meet wants and needs of consumers -lacks incentives -large bureaucracy -little flexibility -discourages new and different ideas -rewards only productive resources -must guard against market failures

What? Based on tradition Traditional Command Market Strengths -Stable , predictable and continuous -Capable of dramatic change in short time -able to adjust to change gradually -individual freedom -less gov’t interference -large variety -consumer satisfaction Weaknesses -Discourages new ideas -Stagnation and lack of progress -Does not meet wants and needs of consumers -lacks incentives -large bureaucracy -little flexibility -discourages new and different ideas -rewards only productive resources -must guard against market failures 3 economic questions What? Based on tradition How? Same as past For Whom? Customs and traditions of sociey What? Central authority (govt) How? Central authority For Whom? Central Authority What? Individuals (consumers and producers) How? Individuals For Whom? Individuals

Assessment: Create three illustrations or comic strips that demonstrate the basic components of each of the economic systems. Once illustration or comic strip per economic system. Complete for HW and turn in tomorrow…

Key Terms Consumer: Consumption: Value: Utility: Wealth: Good: Durable good: Nondurable good: Service: Production: Productivity: Specialization: Division of labor: Human capital: Consumer: Consumption: Value: Utility: Wealth:

Key Terms Free products: So plentiful no one could own them: air, sun Economic products: Goods and services that are useful, relatively scarce and transferable to others Good: Tangible commodity = book or car Durable good: Last 3 years or more when used on a regular basis Washer and dryer Nondurable good: Item that lasts less than 3 years when used on regular basis Service: Work that is performed for someone Haircut, home repairs

Conspicuous consumption: Value: Paradox of Value: Utility: Consumer: People who use goods and services to satisfy wants and needs Consumption: The process of using up goods and services Conspicuous consumption: The use of a good or service to impress others Value: A worth that can be expressed in $ Paradox of Value: Diamond-water paradox…come back to this Utility: Capacity to be useful to someone To have value must be scarce and have utility Wealth: Some of economic products that are tangible, scarce, useful and transferable

Paradox of Value PARADOX- a statement that seems contradictory Some essentials have very little value while others have high value; something to do with scarcity Diamond/water paradox: water is plentiful has little value but diamonds are scarce but have great value

Production: Productivity: Specialization: Division of labor: Process of creating goods and services Productivity: Efficient use of productive resources Specialization: Productive inputs do whatever task they are able to do best Division of labor: Takes place when workers perform fewer tasks more frequently Human capital: The sum of skills, abilities, health and motivation of people Investing it workers helps improve production

Economic interdependence Actions in one part of country or world has economic impact on what happens elsewhere Cold snap in Florida may affect orange crops which could affect price of oranges and orange juice may become more expensive

Circular Flow Model Economic flow of resources and money Components Markets: place of buying and selling goods Factor Market: factors of production Product Market: finished products Individuals: consumers who use income to purchase goods and themselves as labor Businesses: purchase factors of production and produce finished products

Circular Flow Model

Show a product on the circular flow model… Think of a final product and recreate the circular flow model to represent the production of that specific product. Example: Orville Redenbacher Popcorn Be prepared to it in for a formative grade…

Chapter One Review Homework: book pgs. 28 and 29 Complete the following questions in your notebook Reviewing Key Terms #1-10 Reviewing Facts #s 1-3, 5-7, 8-9, 11-12