Productivity

Need vs. Want DISCUSS: What is the difference between a need and a want? Need: something essential for survival Ex: air, shelter, food, clothes Want: something a person desires to have Ex: Cadillac, Playstation3, New Bedroom set

The essential economic problem: SCARCITY: Having UNLIMITED wants & needs but LIMITED resources

DISCUSS: CHOICES When you hear “ECONOMICS,” what comes to mind? What we want to come to your mind… CHOICES

Every CHOICE you make has… Trade-offs: all of the choices when considering a decision Opportunity cost: the opportunity you give up when making a decision. Monetary cost: price you paid for a decision

(Write this to the side) Marginal Costs The extra or additional cost of producing one additional unit of an output Ex: 30 bike helmets= $1500, 31 bike helmets= $1550  marginal cost= $50

(Side) Marginal Revenue the extra revenue that results from selling one more unit of an output

Cost-Benefit Analysis (Side) Cost-Benefit Analysis - an economic decision making technique that tells us to choose an action or make a decision when the benefits are greater than the costs

Impact of Scarcity (p.2 # 4) DISCUSS: Why are diamonds so expensive compared to water? Scarce resources=high price Abundant (not scarce) resources=low price

Productivity

Productivity – What is it? The measure of the efficient use of an economy’s resources. Making the MOST of the resources you have. Utilizing resources to 100% of their capacity. UNDERUTILIZATION: not using resources efficiently Production Possibilities Curve: graphic representation of an economies productivity potential

A Production Possibilities Curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

The 3 Basic Economic Questions (p.3 # 6) What to produce? How to produce? For whom to produce?

3 Types of Economic Systems Traditional Command Market

Traditional Economy What did you Produce? Determined by your tradition and ancestors

Traditional Economy How did you Produce it? For Whom did you Produce? The same way its always been done; NO SPECIALIZATION For Whom did you Produce? Produce for tribe or local community

Command Economy What did you Produce? Determined by the government or central planner

Command Economy How did you Produce it? For Whom did you Produce? Told how to by central planner; SPECIALIZATION For Whom did you Produce? The gov’t or central planner

Market Economy What did you Produce? Determined by whatever would make the most profit

Market Economy How did you Produce it? For Whom did you Produce? The way that made the most profit; SPECIALIZATION For Whom did you Produce? Consumers, people interested in product

Mixed Economy Most countries (including the US) are mixed economies. This means they have some aspects of the 3 types of economies The US is a mixed economy, but is mostly made up of a market economy.

Productivity (p.1) Vocabulary

Productivity – What is it? (?’s box) The measure of the efficient use of an economy’s resources. Making the MOST of the resources you have. Utilizing resources to 100% of their capacity. UNDERUTILIZATION: not using resources efficiently Production Possibilities Curve: graphic representation of an economies productivity potential

A Production Possibilities Curve Units of food Units of clothing (millions) (millions) 8m 0.0 7m 2.2m 6m 4.0m 5m 5.0m 4m 5.6m 3m 6.0m 2m 6.4m 1m 6.7m 0 7.0m Units of food (millions) Units of clothing (millions)

Remember…… Scarcity forces people to make decisions about how they will use their resources!!! **Economic decision making requires people to consider all the costs and benefits of a decision What are trade-offs??? What is an opportunity cost???

Other Costs Fixed Costs Variable Costs Total Costs Costs or expenses that are the same no matter how many units of are good are produced Ex: mortgage payments, rent Variable Costs Costs or expenses that change with the number of products produced Ex: wages, raw materials, electricity bills, water bills These costs increase when production increases and decrease when production decreases Total Costs - Fixed Costs + Variable Costs= Total Costs

Thinking at the Margin Marginal Costs - The extra or additional cost of producing one additional unit of an output Ex: 30 bike helmets= $1500, 31 bike helmets= $1550  marginal cost= $50 Marginal Revenue the extra revenue that results from selling one more unit of an output

Cost-Benefit Analysis - an economic decision making technique that tells us to choose an action or make a decision when the benefits are greater than the costs

Productivity - Vocabulary How well resources are being used to produce a good or service.

Outputs vs. Inputs Output: something made/produced Input: something that is used to make/produce an output

Input/Output Practice ? production Output Jeans Input Wood, nails, windows, construction worker production Output ? Input Wood, graphite, rubber production Output ? Input ? production Output Car

Division of Labor Breaking up the steps of production among many workers

Specialization Workers are experts at only one task and do that task efficiently

Ways to increase productivity 1790 Total population = 4 million Farmer population = 3.6 million (90%) 1840 Total population = 17 million Farmer population = 9 million (53%) 1940 Total population = 132 million Farmer population = 30 million (23%) 1990 Total population = 246 million Farmer population = 4 million (1%) SO…why haven’t we all died of starvation if there are less farmers today than before?

An assembly line (p. 3 #8) Increases productivity by having workers stand still and have output come to them to work on.

Technology Increases productivity by improving the tools used to produce goods (robots, computers)

Human Capital Increases productivity by making the worker smarter.

Automation Increases productivity by using machines instead of humans (machines don’t get tired or take breaks)

Automation

Mixed Economy Most countries (including the US) are mixed economies. This means they have some aspects of the 3 types of economies The US is a mixed economy, but is mostly made up of a market economy.

Comparative Advantage (p.4) When a country produces a good that is easy to make instead of a good that is hard to make. Ex: Saudi Arabia produces Oil U.S. produces Wheat

How does it affect global markets? Comparative advantage leads to interdependence between countries. Ex: U.S. sends extra wheat to Saudi Arabia for oil.

DISCUSS: When you go into Subway, is it faster if there is 1 worker behind the counter or 2? What do the 2 workers do that makes it faster?

Law of Diminishing Returns (p. 4 #10) Productivity will increase to a point, then begin to decrease as you add one factor of production. Most productive at this point

Law of Diminishing Returns By adding more factors of production (i.e. technology, better trained workers, better entrepreneurship) it leads to greater efficiency. But ONLY to a certain point and then you begin to lose efficiency.

White collar vs. Blue collar workers White collar workers Professional or clerical job (desk job) Usually paid by salary Ex: Manager, secretary, engineer, doctor Blue collar workers Work in manufacturing jobs Usually paid hourly Ex: Factory worker, farmer, miner, plumber

Skilled vs. Unskilled Skilled laborer (worker): A person who has special training/education to do their job. Unskilled laborer (worker): A person who has no, or little training/education to do their job.

Skilled vs. Unskilled

Which is more productive Skilled laborers are typically more productive since they have received more training and can do something others can not.