THE STUDY OF CHOICE!

WHAT IS ECONOMICS?  ECONOMICS  is the study of how people use limited (scarce) resources to satisfy unlimited wants.  People simply cannot have everything they need and want  What is the difference between needs & wants?  Needs are necessary for survival  Wants are simply ways of expressing needs.  For example?

 So…. If our wants are unlimited, but they can’t all be satisfied because our resources are limited …..  What is a resource?  anything people can use to make or obtain what they want

SCARCITY   In economics, scarcity “not plentiful.”   Scarcity exists in 2 situations: 1. 1.When resources are limited and human wants are unlimited 2. 2.When a resource has more than one valuable use.   “Is it Scarce?” – partners, review examples, determine if “S” or “NS”  Law of Scarcity says that since all resource are limited, you must give up something in order to get something else  TINSTAAFL economic principle

Scarcity and Abundance   Are NOT mutually exclusive   How is it possible that scarcity & abundance can exist together?   For example, water……   It seems abundant in a large lake or river BUT it is still scarce.   Why? Explain.   Widespread evidence of abundance, however, may cause people to treat scarce resources as if they were not scarce   What would this lead to?   “Are People Treating Resources as Scarce?” – partners, review examples, determine if “S” or “NS”

Assessment Check! 1. Which of the following statements is NOT consistent with the economic concept of scarcity? a)People are scarce because they have many valuable uses in the world. b)Trash is scarce because you rarely see much of it around unless you go to a landfill. c)Knowledge is scarce because what we wish to know is so great relative to what we do know at this time. d)Electricity is scarce because it has many valuable uses.

FACTORS OF PRODUCTION  The economic resources used by producers to make goods and services.  FACTORS OF PRODUCTION:  LAND = natural resources (land, mineral deposits, etc.)  LABOR = human resources (physical & mental work)  CAPITAL = building, tools, equipment, machinery, $, etc. used to make goods or provide services  Human capital – knowledge & skills of workers (education, experience)  Physical capital – objects used to make goods/services  ENTREPRENEURS = those willing to take the risk of forming or managing a business

Production of Goods or Services?   Factors of production are used to produce goods and services.   A good or service produced by the following?   Newspaper Publisher?   Reporter?   Google?   Blockbuster?

TYPES OF GOODS   What type(s) of goods are these?  Consumer  Capital  Durable  Non-durable

TRADE-OFFS & OPPORTUNITY COSTS TT INSTAAFL! DDue to scarcity, there are alternatives & costs to everything we do TT RADE-OFF: Act of giving up one benefit in order to gain another benefit (individuals, businesses, gov’ts all make them.) …… the alternatives you have when you are making a choice. In government…guns vs. butter OO PPORTUNITY COST: TThis is the next best, most desirable alternative that you gave up – the one you did NOT choose WWhat would be the opportunity cost of choosing to work 20 hours per week while in high school?

Opportunity Cost I Want Items A & B Trade-Off Decision Need I chose item A I didn’t choose item B Next best choice but… This is the Opportunity Cost

The Basic Trilogy of Economics: 1. Scarcity 2. Choice 3. Cost Costs

PRODUCTION POSSIBILITIES CURVE   Is a graph typically used to show a business’ alternatives in production possibilities   Compares possibilities & costs of different categories of production   Used to illustrate the opportunity costs a producer has --- his “production possibilities frontier”   Governments go through the same process   Classic “Guns” vs. “Butter” analysis   i.e., defense vs. consumer products

I can produce this much of item A more Production Possibilities Curve I can produce this much of item B

I can produce any combination of A and B inside or on this curve more Production Possibilities Curve item A item B. (A,B). (A 1,B 1 ). (A 2,B 2 )..

Production Possibilities Curve Chairs Tables (100,300).. (300,150) What is the total # of tables possible to produce? What is the total # of chairs possible to produce? If I produce 100 chairs, how many tables can I produce? If I produce 300 chairs, how many tables can I produce? What is the opportunity cost in tables if I choose to produce 300 instead of 100 chairs?

Production Possibilities Curve Chairs Tables As long as I am operating on curve, I am 100% efficient and using all my resources.....

Production Possibilities Curve Chairs Tables As soon as I fall inside the curve, I am inefficient – underutilization of resources is occurring

Production Possibilities Frontier Chairs Tables I can’t produce out here. It’s beyond my resources..

Production Possibilities Frontier Chairs Tables In order to produce out here, I would have to do something different. Like what?. Add more people Add more machinery Enlarge my factory.

Productivity/Efficiency   Most efficient use of scarce resources – can be improved by:   Division of Labor:   Organizing work so individuals do fewer tasks   Specialization:   Proficiency at a task – workers can become more proficient if they have less overall tasks   Prime Example?   Query: What is the greatest single factor for improving the productivity of human capital?   EDUCATION & TRAINING