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.

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?

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

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.

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.

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

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?

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

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

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

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

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)

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?

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

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.

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?

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

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

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

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

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

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?

Steel, Rubber, Plastic 125 16 25 planes 25 cars

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