1. What is Economics?
The social science concerned with how limited resources are used to satisfy people’s unlimited wants.
The study of how people decide how to resolve the conflict between unlimited wants and limited resources.
“the science of choice”
Examples of each:
Which is both created and used to create?

2. Every Choice has Trade offs Opportunity Cost Unintended Consequences
Externalities
Unforeseen outcomes of that
are caused by individuals or
groups.

4. Scarcity Scarcity: when people desire more of a good than exists.
Forces us to make choices
Exceptions:
The fact that there is small quantity (rare) of a good does not make it scarce
People have to want it.
Caviar, radioactive waste, clean air

5. Free Goods If a good is not scarce it would be a free good.
More units of a free good would not make anyone better off.

6. Shortages v. Scarcity Scarcity is not the same as a shortage
Shortages occur in short term when supply can not meet consumer demand
Can you think of any examples of shortages?
Scarcity always exists because our needs and wants are always greater than our resources

7. Test for determining Scarcity
A good is scarce:
1) Do people want it?
2) Are they willing to pay for it?
Apply the test to the following goods:
A car
Toe Nail Clippings
A donut
Dirty Diapers
Gasoline
Orange Juice
Diapers
AIDS medication.
Gonorrhea

8. Choice Scarcity forces people to make choices.
When a good is scarce, people are forced to choose between which uses will be fulfilled and which will not be fulfilled.
This is called a trade-off, trade-offs create opportunity cost!
Making a 5 cars instead of a tank out of steel.
Going on a vacation instead of working over the week long spring break
Playing Madden instead of studying for economics
Discussion: college, what are the trade-offs?

10. Opportunity Cost
Opportunity cost is the best thing you give up when you make a decision
alternative given up as a result of a decision
What is the best possible thing I am giving up; stated in a positive way?
Choice: What to do with a block of wood
Use it as a chair Use it as a door stop

11. Opportunity Cost
Alternatives Going on Facebook Doing HW Benefits: Getting the Gossip Completed HW Trade-off: No HW No Facebook Opportunity Cost: Completed HW Getting the Gossip

12. Opportunity Cost Practice
Spending $ on a pair of new jeans
Skipping class
Going to college
Passing the ball in a basketball game
Cutting down an apple orchard to make room for a new apartment complex
Using 20% of our countries resources on the armed forces

13. Practice. Going to the movies instead of cleaning your room
Eating a Powerbar even though you know it is going to hurt your stomach
Fixing your car instead of going on vacation

14. Resources The inputs that are used in production.
Also known as factors of production
They include:
Natural resources (land)
Labor
Capital
Entrepreneurship

16. LABOR
Skilled
Unskilled

17. Factors of Production Size of U.S. Labor Force, 1950-1996
Labor force (millions)
1950
1960
1970
Year
1980
1990
1996
140
120
100 80 60 40 20
Size of U.S. Labor Force,
Observations?
Conclusions

18. Types of Capital Real Capital Financial Capital
The means of production
Financial Capital
Used to purchase the means of productions
Examples real capital: tools, machinery, buildings, computers, equipment (durable goods)

22. How It’s Made:

23. Land –rubber, cardboard used in the pakaging, the ink used in the packaging, the die used for the bands, electricity used to run the machines,
Labor- people that run machines, design bandz, market bands
Capital- machines, computers used to design the bandz investment money, computers used to design the bandz
Entrepreneur

24. Organizing the Factors
Think of the most innovative company, business, good/service you have encountered.

25. Factors of Production
Entrepreneur: a business innovator who sees the opportunity to make a profit from a new product, new process, or unexploited raw material and then brings together the land, labor, and capital to exploit the opportunity. Take the risk and reap the benefits.
Without entrepreneurs, land, labor, and capital would have a difficult time organizing themselves.

30. Guns or Butter- PPF Curve Productions Possibilities Frontier
Countries have to decide what to produce
If they produce more military goods, they have fewer resources to devote to consumer goods

31. Business Capital Stock, 1970-1994
Factors of Production
Business Capital Stock,
Equipment 1 2 3 4 5 6 7 8 9
1970
1975
1980
1985
1990
1994
Capital stock (billions of 1987 $)
Year
Structures
Observations, Conclusions?

32. Questions Identify the factors of production
What role do entrepreneurs play in the economy?
What is the opportunity cost of building a turf athletic field in an area currently occupied by low income housing apartments?

33. Questions
Explain how the Guns or Butter argument is used by economists?

34. Production Possibility Frontier
A PPF shows us: What we can make with what we have.
The different maximum output combinations of goods/services than can be obtained from a fixed amount of resources
A PPF curve is a visual representation of trade-offs and opportunity Cost

35. What does a PPF do?
A PPF is a graph shows what the economy can produce with the present resources
If the economy is at a point on the line, then it is making full use of its resources- efficient
If the economy is not using all its resources efficiently then it will be at a point inside the boundary this is called underutilization.
It is impossible to be at a point outside the PPF unless there is an increase in the factors of production

36. Option: Cars Planes A B C D E
Use a PPF chart to graph the information above

37. A B Cars Planes 16.What resources are scarce?
17. About how many cars can be produced when five planes are made?
18. About how many planes can be produced when 36 cars are produced?
19. What is the opportunity cost of producing 150 cars?
20. What is the opportunity cost of producing 5 planes?
21. What could cause production at point A?.
22. Point B?
175
150
125
Cars
100 75 50 A 25 B 5 10 15 20 25 30
Planes

38. List resources scarce in this situation?
About how many cars can be produced when five planes are made?
About how many planes can be produced when 36 cars are produced?
What is the opportunity cost of producing 125 cars?
What is the opportunity cost of producing 5 planes?

39. Steel, Rubber, Plastic
125 16
20 planes
25 cars

40. What is scarce in this situation?
Leather
How many Sofa’s can be produced when 300 pairs of boots are made?
600
3 sofas
500
Boots
What is the opportunity cost in terms of Boots when 10 sofas are made?
400
300
500 pairs of boots
200
100 1 3 5 10 15 30
Sofas

41. Questions
Explain how the Guns or Butter argument is used by economists?

42. PPF Practice
Tapped

43. What is Economics?
The social science concerned with how resources are used to satisfy people’s wants.
The analysis of how people decide how to resolve the conflict between unlimited wants and limited resources.
“the science of choice”
Examples of each:
Which is both created and used to create?

44. Scarcity Occurs whenever people desire more of a good than exists.
Scarcity is the source of all choice.
Exceptions:
The fact that there is small quantity of a good does not make it scarce.
Think of an example.
Caviar, radioactive waste, clean air

45. Free Goods A good is a free good if it is not scarce.
More units of a free good would not make anyone better off.

46. Shortages v. Scarcity Scarcity is not the same as a shortage
Shortages occur when a producer cannot or will not offer goods/services at the current prices
Scarcity always exists because our needs and wants are always greater than our resources
Explain to the person next to you the difference between Shortages an Scarcity.

47. Test for determining Scarcity
A good is scarce:
1) if more would make someone better off.
2) if the good were free, people would want more of than is available.
Apply the test to the following goods:
A car
Toe Nail Clippings
A donut
Dirty Diapers
Gasoline
Orange Juice
Diapers
AIDS medication.
Gonorrhea

48. Choice Scarcity forces people to make choices.
When a good is scarce, people are forced to choose between which uses will be fulfilled and which will not be fulfilled.
This is called a trade-off.
Discussion: college, what are the trade-offs?

49. Opportunity Cost
Opportunity cost is the most desirable alternative given up as a result of a decision
What is the best possible thing I am giving up; stated in a positive way?
Alternatives
Going on Facebook Doing HW
Benefits: Getting the Gossip Completed HW
Decision: Go on Facebook Do HW
Trade-off: No HW No Facebook
Opportunity Cost: Completed HW Getting the Gossip

50. Opportunity Cost Practice
Spending $ on a pair of new jeans
Skipping class
Passing the ball in a basketball game
Cutting down an apple orchard to make room for a new apartment complex

51. Resources The inputs that are used in production.
Also known as factors of production
They include:
Natural resources (land)
Labor
Capital
Entrepreneurship

53. Factors of Production Size of U.S. Labor Force, 1950-1996
Labor force (millions)
1950
1960
1970
Year
1980
1990
1996
140
120
100 80 60 40 20
Size of U.S. Labor Force,
Observations?
Conclusions

54. Types of Capital Real Capital Financial Capital
The means of production
Financial Capital
Used to purchase the means of productions
Examples real capital: tools, machinery, buildings, computers, equipment (durable goods)

55. Business Capital Stock, 1970-1994
Factors of Production
Business Capital Stock,
Equipment 1 2 3 4 5 6 7 8 9
1970
1975
1980
1985
1990
1994
Capital stock (billions of 1987 $)
Year
Structures
Observations, Conclusions?

56. Agenda 9/8 Welcome Calendar Opportunity Cost Practice
Entrepreneurial Spirit
Introduction to PPF Curves
HW: Key Terms 1 due Wed.

57. Factors of Production
Entrepreneur: a business innovator who sees the opportunity to make a profit from a new product, new process, or unexploited raw material and then brings together the land, labor, and capital to exploit the opportunity. Take the risk and reap the benefits.
Without entrepreneurs, land, labor, and capital would have a difficult time organizing themselves.

58. Organizing the Factors
Think of the most innovative company, business, good/service you have encountered.

59. Questions Identify the factors of production
What role do entrepreneurs play in the economy?
What is the opportunity cost of building a turf athletic field in an area currently occupied by teacher/student parking?

60. What does a PPF do?
A PPF is a graph shows what the economy can produce with the present resources
If the economy is at a point on the line, then it is making full use of its resources- efficient
If the economy is not using all its resources efficiently then it will be at a point inside the boundary
It is impossible to be at a point outside the PPF unless there is an increase in the factors of production

61. Production Possibility Frontier
A PPF illustrates the different maximum output combinations of goods/services than can be obtained from a fixed amount of resources
A PPF curve is a visual representation of trade-offs

62. Guns or Butter Countries have to decide what to produce
If they produce more military goods, they have fewer resources to devote to consumer goods

64. Option: Cars Planes A B C D E
Use a PPF chart to graph the information above

65. 175
150
125
Cars
100 75 50 25 5 10 15 20 25 30
Planes

66. List resources scarce in this situation?
About how many cars can be produced when five planes are made?
About how many planes can be produced when 36 cars are produced?
What is the opportunity cost of producing 150 cars?
What is the opportunity cost of producing 5 planes?

67. Steel, Rubber, Plastic
125 16
25 planes
25 cars