Unit 1 Chapters 1 - 3

Chapter 1 – What is Economics? Society is structured around the idea that everybody has needs and wants. Goods and services fulfill them. Needs – essential for survival i.e. food, shelter Wants – we desire, but not necessary i.e. IPhone, 60” HDTV Some items can be both a need and want i.e. Cowfish Goods – tangible/physical objects i.e. food, clothing, electronics Services – actions/activities that one person performs for another i.e. haircut, tax return, manicure, oil change Some things can provide both a good and service i.e. restaurant serves you food (good), but also cooked (service) the food

What is Economics? Peoples needs and wants are unlimited Scarcity – fact that limited amounts of goods and services are available to meet unlimited wants This is the Basic Economic Problem Economics – the study of how people seek to satisfy their needs and wants by making choices Scarcity vs. Shortage Scarcity always exists i.e. gold Shortages are caused by suppliers not making more of a good/service i.e. IPad Always want the newest technology, newer car, more food etc. Scarcity forces people to make choices If you study for tests, you can’t play video games with friends If a store wants to advertise more, might not be able to hire as many employees

What is Economics? To satisfy needs and wants resources must be turned into goods/services Entrepreneurs – people who decide how to combine resources to create new goods and services Factors of Production – the resources individuals use to make all goods/services Land – all natural resources i.e. oil, timber, water Labor – people/workers i.e. doctor, farmer, assembly line worker Capital - resources used to produce other goods and services Physical Capital – buildings, equipment, tools, computers, etc. Human Capital – knowledge and skills a worker gains through education/experience Benefits of Capital – extra time, more knowledge, more productivity Does anybody’s parent in here own their own business? Are they providing a good or service? Excluding startups, young firms—defined as one to five years of age—accounted for nearly two-thirds of job creation in 2007. According to the most recent Non-Employer Statistics published the U.S. Census Bureau, on average 2,356 people go into business for themselves every day. Their firms account for 78 percent of U.S. businesses and $951 billion in receipts Human capital – mechanics need experience rebuilding a transmission but they also need base knowledge through education like WYO Tech Doctors need to have the MRI machine to check out internal injuries, but also need the training to read what the MRI tells them Benefits of capital Because workers are more productive they can do the same amount of work in less time. More knowledge helps workers become more productive

Chapter 1.1 Questions What is the difference between goods and services? What does an entrepreneur do? Identify the factor of production represented by each of the following: A. fishing waters B. an office building C. clerks in a store D. a tractor E. a student in a cooking school Think of a good or service you consumed today. List at least five factors of production used to produce that good/service. Factors of Production Natural Resources Human Resources Capital Resources Entrepreneurship

Determine Opportunity Cost Opportunity Cost - Every time we choose to do something we give up the opportunity to do something else. Determine Opportunity Cost The most desirable alternative given up as the result of a decision Usually the difference between cost of what you chose and cost of what you didn’t choose Trade-off – giving up one benefit in order to gain another, greater benefit. Individuals Businesses Government Opportunity cost – gas up vs. go out to Mcdonald’s; drink and get busted at a party vs. playing varsity sports - purchasing car example Trade off – Individual - gave up scholarships to UW so I could go play football at BH, how many of you are going to give up hathaway money for a chance to get out of here??? Business – give up chance for super bowl ad but can build a new production plant Government – fund military but can’t fund domestic needs

Thinking at the Margin – when you decide how much more or less to do Ex. Sleeping in: get more sleep, but might miss the bus Cost/Benefit Analysis – comparing opportunity costs and the benefits, what will be sacrificed vs. what will be gained Marginal Cost – the extra cost of adding one unit ex. One more hour of sleep Marginal Benefit – the extra benefit of adding the same unit As long as the marginal benefits exceed the marginal cost it pays to add more units.

Decision making at the Margin

Chapter 1.2 Questions Why do all economic decisions involve trade-offs? Why do many economic decisions involve thinking at the margin? Identify a possible opportunity cost for each of the following choices: A. studying for a test on a Saturday afternoon B. using all the money you received for your birthday to pay for downloading songs C. spending four hours playing a video game on a Tuesday night D. having four slices of pizza for lunch

Production Possibilities Curve How do you decide what and how much to produce? Production Possibilities Curve – a graph that shows alternative ways to use an economy’s productive resources. Production Possibilities Frontier – a data line showing the possible combinations of production of certain items

Production Possibilities Curve At each point on the production possibilities frontier there are Trade offs. These trade offs must happen because factors of production are scarce (workers, capital, etc) Underutilization – look at point “D” anything inside of the curve is not using all of the possible output Growth – if the economy grows, factors of production grow (higher population for instance ) the production possibilities frontier can move/shift to point “E”

Efficiency, Growth, and Cost A production possibilities frontier shows an economy working at its most efficient level Efficiency – the use of resources in such a way as to maximize the output of goods/services Underutilization – the use of fewer resources than the economy is capable of using Growth/increases in factors of production and shift the production possibilities frontier There will always be opportunity costs when determining what and how much to produce Some resources are better suited to produce certain goods Technology and Education increase efficiency Growth – any increase in factors of production Immigration may lead to more labor Louisiana purchase led to more land Invention of computer led to more efficient labor Fertile farmland is better served producing watermelons, where as desert area might be better for a factory because you don’t need fertile ground Technology – how much easier is it to take notes on the computer than by hand??? Why do governments invest in technology? Education – skilled workers are more efficient and productive. How easy would it be for me to teach economics if I knew absolutely nothing about it?? Could fix an replace a transmission on a car?

Efficiency, Growth & Cost

Chapter 1.3 Questions What is a production possibilities curve? What do economists’ mean by growth? What factors can produce economic growth? Explain how each of the following circumstances is likely to affect a nation’s production possibilities frontier: A. The opening of a new college of engineering B. an earthquake in the nation’s chief farming region C. a new type of chemical fertilizer D. a shortage of oil