What is Economics? “Scarcity and Factors of Production” Chapter 1.1

Choices and Decision Making: The study of economic begins with the idea that people cannot have everything they need and want. Need: Anything that is necessary for survival. (food, shelter…etc.) Want: Something we desire, but is not essential to our survival. (xbox, ipod,…etc.)

What is Economics? Economics: The study of how people satisfy their wants and needs by making choices. People must make choices due to scarcity. Scarcity: limited quantities of resources, and unlimited wants. (think of oil) -no matter what it is, sooner or later a limit is always reached. -scarcity always exist because our needs and wants are always greater then our supply.

Scarcity vs. Shortage: Shortages: Shortages occur when producers will not or cannot offer goods and services at current prices. Shortages can be temporary or long-term (unlike scarcity, which always exists.)

Goods and Services: Many Americans find it difficult to understand the idea of scarcity, because when they look around they see goods and services all around them. Good: a physical object. (shoes, shirt) Service: actions or activities that one person performs for another. (haircut, tutoring)

Factors of Production: These are the resources that are used to produce goods and services. Land- all natural resources. Labor- Task completed by a person who is paid. Capital- any human made resource that is used to produce other goods and services. There are 2 different types of capital.

Physical capital: human made objects used to create goods and services. (Tools) Human capital: Knowledge and skills a worker gains through education and experience. (lawyer = education, McDonald’s worker = experience or job training)

Entrepreneurs: Entrepreneurs: These are the people who pull resources together in order to create goods and services. Ambitious leaders, usually risk takers, who decide exactly how to combine land, labor, and capital resources to create new goods and services. Develop original ideas, start businesses, and create new industries. Most importantly, entrepreneurs fuel economic growth.

Entrepreneur Assignment: 1.Tell me what business you are going to start, and why you decided on starting that business. 2.Need or Want? 3.Good or Service? 4.Human and Physical Capital?

Bell Work: 1. What is the difference between a shortage and scarcity? 2. What is the difference between a need and a want? 3. What are the 3 factors of production? 4.If you hadn’t come to school today, what would you be doing instead? (Make a list of at least 3 things.)

Opportunity Cost: 1.2

Trade-Offs: Every decision we make in life involves choosing one thing, while giving up another. Trade-offs: Trade-offs are all of the alternatives we give up when we choose one thing over another. All decisions involve trade-offs because resources are limited. (scarcity)

Who Makes Trade-Offs?: Individuals- more time at work, less time for hobbies. Businesses- must make decisions on how to use land, labor, and capital. Society (Countries)- if a country invest more money in one thing, it has less money to spend on another. (guns or butter decision)

Opportunity Cost: Opportunity Cost: The most desirable thing given up in a decision. Sometimes making a decision is difficult because opportunity cost may be unclear or complicated. (Decision Making Grid)

Alternatives: Sleep LateWake Up Early to Study Benefits: -Enjoy more sleep -Have more energy during the day -Better grade on test. -Teacher and parental approval. -Personal satisfaction Decision:Sleep LateWake up early to study for test, Opportunity Cost: Extra study time. Extra sleep time. Benefits Lost: -Better grade on test -Teacher/parental approval. -Personal satisfaction -Enjoy more sleep. -Have more energy during the day Decision Making Grid

Thinking at the Margin: Thinking at the Margin: When you decide how much more or less to do, you are thinking at the margin. (Decision: study 1, 2, or 3 hours extra for a test.)

Making a Decision at the Margin: Making a decision at the Margin: When you look at the opportunity cost and the benefit of a decision, you are making a decision at the margin. (Decision: Study 1, 2, or 3 hours extra for test.) Opportunity Cost: Less time to spend with friends. Benefit: Passing the test

Writing Assignment: On lined paper, tell me about an important decision you have made in your life. 1. Tell me in great detail about the decision you made. 2. Tell me some of the trade-offs of your decision. 3. Tell me the opportunity cost 4. Was it worth it?

Bell Work: 1. What does the “Guns and Butter Decision” refer to ? 2. What is the difference between trade-offs and opportunity cost? 3. What is the difference between scarcity and a shortage?

Production Possibilities Graph: -Economist often use graphs to analyze the choices and trade-offs that people make -Why? Because graphs help us see how one value relates to another. -Production possibility graph: Shows the alternative ways to use an economy’s resources

Shirts Shoes 5_ 10_ 15_ 20_ 25_ 30_ 5_ 10_15_20_25_30_ - Underutilization - Currently Unachievable - Trade-Offs

5_ 10_ 15_ 20_ 25_ 30_ 5_ 10_15_20_25_30_ Shirts Shoes Shifts in the Production Possibility Curve:

What the Graph Shows: 1. Efficiency- using resources in such a way as to maximize the production or output of goods and services. 2. Growth-Increases in technology will cause output to increase. 3. Cost-The opportunity cost of producing one good over another.

Law of Increasing Cost: Law of increasing cost: As production switches from one item to another, more and more resources are necessary to increase production of the second item.