2. Economics Economics: determining how to satisfy unlimited wants with limited resources. For example: You choose how to spend your time Businesses choose how many people to hire

3. Certain Economic Truths Everything has costs Choices have trade-offs Incentives drive choices. Voluntary trade creates value Value of something depends on: Scarcity Utility Value often expressed in dollars and cents

4. Wants vs. Needs Want - Something people would like to have but is not necessary for survival – has value to you Need - Something people must have to survive

5. Goods vs. Services Good: Any item that can be bought or sold – physical presence Service: Any action that one person or group does for another in exchange for payment

6. Scarcity Scarcity: The universal problem that forces us to make choices in a world of limited resources to meet unlimited wants. Goods and services are limited in quantity Resources are plentiful or scarce (rare) Resources are renewable or nonrenewable. Resources are scarce in that they require effort to make them useful to people.

7. Scarcity and Shortages Scarcity: Occurs when limited amounts of resources try to meet unlimited needs or desires Shortages: Occur when producers will not/cannot offer goods or services at current prices Question: Would you consider gasoline as scarce or is there a shortage?

8. So if……… ECONOMICS IS DETERMINING HOW TO SATISFY UNLIMITED WANTS WITH LIMITED RESOURCES. THEN……… How people make choices to satisfy their needs and wants determines how resources are allocated Resources are used to produce goods, so we call resources – The Factors of Production.

9. Factors of Production : The essential ingredients needed to produce any good or service. Land : Natural resources used to produce goods and services. In their usual unaltered form. Labor : Physical or mental effort a person devotes to a task for which that person is paid. Capital : Human-made resources used to create other goods and services. Physical Capital: objects made by people Human Capital: knowledge and skills of people Entrepreneur: Person who takes a risk and combines the other factors of production in a creative way for the chance to earn profit.

10. Partner up: Pick one of the goods/services on the list. List the land, labor, physical and human capital, and Entrepreneurship for each. 1. Super Cuts Hair cut 2. Papa Murphys Pizza 3. MVHS Sweatshirt 4. Dutch Bros. Coffee 5. Oil change at Jiffy Lube 6. Cheetos from vending machine 7. Make you own Chocolate Chip Cookies 8. Fill your gas tank

11. Trade-offs : All possible alternatives whenever we choose one course of action over others. Vacation Destinations : Whistler, Washington D.C. or Maui Economies face trade offs when deciding what goods and services to produce. All individuals and groups of people make decisions that involve trade-offs. Ex: Guns and Butter

12. Opportunity Cost Opportunity Cost: The most desirable alternative given up as a result of a decision. Opportunity Cost is what you give up to do what you are going to do. There are always side effects or costs involved = OC

13. Decision Making Grid Decisions can be clear-cut or complicated A decision-making grid can help you determine whether you are willing to accept the opportunity cost of a choice you are about to make. Ex: Karen and her test http://yadayadayadaecon.c om/clip/84/ http://yadayadayadaecon.c om/clip/84/

14. 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 timeExtra sleep time Benefits forgone Better grade on test Teacher and parental approval Personal satisfaction Enjoy more sleep Have more energy during the day Sleep lateWake up early to study Alternatives Karen’s Decision-Making Grid

15. Marginal Thinking In economics, marginal means additional or extra – one more Economists use marginal analysis to compare benefits and costs Lets look at Karen’s decisions marginally:

16. Production Possibilities Graph and Frontier A production possibilities graph shows alternative ways that an economy can use its resources. The production possibilities frontier is the line that shows the maximum possible output for that economy. Great example of Opportunity Costs and marginal thinking Moving from one unit to the next, what is given up?

17. Watermelons (millions of tons) Shoes (millions of pairs) Watermelons (millions of tons) Shoes (millions of pairs) 015 814 12 189 205 210 25 20 15 10 5 0 5 10 15 20 25 0,15 8,14 14,12 18,9 20,5 21,0

18. Production Possibilities for a Country Depends upon on its available resources (factors of production) It also depends upon the country’s given state of (or level) of technology Three options: Efficiency Underutilization Growth

19. Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Watermelons (millions of tons) Production Possibilities Graph g (5,8) A point of underutilization c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Efficiency Efficiency: using resources in such a way as to maximize the production of goods and services. Underutilization: not using all the resources available

20. Shoes (millions of pairs) 25 20 15 10 5 0 252015105 Watermelons (millions of tons) Production Possibilities Graph T Future production Possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.”

21. Would You Swim There?

22. Marginal Analysis…..is a particularly powerful tool for analyzing emotional-laden issues such as pollution and the environment It helps to counteract our collective tendency to approach pollution as an all-or -nothing issue in which we only look at total costs and total benefits A limited focus on total costs and benefits may prevent us from considering alternatives at each step of the process in question.

23. It’s a Pond, But Would You Swim in It? At the edge of your community is a large spring-fed pond. Once it was probably beautiful, but now it is an eyesore; it is dangerous. Rusted out hulks of wrecked cars mingle with huge oil drums along the shore, and what appears to be a truck frame rises from the approximate location of the spring. The slimy surface suggests that whatever was in the oil drums is leaking and probably not friendly to birds or other living creatures. A creek running through the farmlands to the west drains the pond. The creek joins the stream that passes under the road to the nearest city, and while the creek eventually becomes scenic, it doesn’t seem to attract fisherman.

24. It’s a Pond…(continued) While the pond is technically on the common land of the community. The developer has, on advice of his insurance company, put up a huge chain-link fence. It didn’t take long, however, for you and your friends to find a way through the fence, and you twice had run-ins with the construction supervisor, who has clearly forgotten what it is like to be young and adventurous! It’s a shame not to be able to use the pond for ice skating, fishing and swimming and they agree to bring up the issue at the homeowners’ meeting. Surprisingly, they were joined by an angry group of residents with no children who think that “there’s no excuse” for not cleaning up the pond entirely.

25. Hire a local consultant to report on the possibilities for clean-up. Homeowners dues are spent for ongoing services (like removing snow and trash and mowing the greenbelt, periodic maintenance), and community improvement projects (like building a swimming pool or tennis court). The consultant has submitted a proposal that has been distributed to to the homeowners.

26. Consultant’s Report Project Stage % Pollution Removed Cumulative Total Cost Results: Community uses Cumulative Total Benefits 1 40% $1 million Walking, picnics, wildlife Viewing, dog run $3-4 million 2 65% $2 millionSkating, hockey, boating $5-6 million 3 80% $3 million Fishing, greenbelt irrigation, garden irrigation $6-7 million 4 90% $4 millionswimming$7-7.5 million 5 95% $5 millionDrinking water $7.25-7.5 million Total Cost = $5 million