1. Economics
Ms. Curran
August 17

2. Economics
The study of how individuals, families, business, and societies use their limited resources to fulfill their unlimited wants

3. 2 Types: Micro vs. Macro
Microeconomics – The branch of economic theory that deals with behavior and decision making by small units such as individuals and firms.
Macroeconomics – The branch of economics theory dealing with economy as a whole and decision- making by large units such as governments.

4. Need vs Wants
Need – something like air, food, or shelter that is necessary for survival
Want – an item that we desire but that is not essential to survival
Example….

5. Scarcity
A basic economic problem that exists when there are not enough resources to meet human wants.
NOT a temporary shortage of something.
It goes on… and on… and on… and on…
Don’t mix up with shortage
More will come!
Ex: supermarket running out of pizza rolls

6. Goods & Services
Goods – tangible (physical) items that people buy such as medicine, clothing, or computers
Services – work that one person performs for another for payment
What are some services that you use?
Consumers buy g&s
Producers makes g&s

7. The Three Economic Questions
Scarcity leads to three economic questions…
What will be produced?
A society must decide the mix of goods and services it will produce.
How will it be produced?
Using scarce resources in the most efficient way to satisfy society’s wants.
For whom will it be produced?
How goods and services are distributed among people in society.
Everyone gets and equal share?
How much are you willing to pay?

8. 4 Factors of Production
Factors of Production – the economic resources needed to produce goods and services
4 broad categories… All with the same thing in common…
Supply is limited!

9. 4 Factors of Production
Land – all natural resources found on or under the ground that are used to produce goods and services
Labor – all the human time, effort, and talent that go into the making of products

10. 4 Factors Continued
Capital – all the resources made and used by people to produce and distribute goods and services
Physical Capital – a producer’s physical resources; i.e. tools, machinery, factories
Human Capital – the knowledge and skills gained through experience
Entrepreneurship – the combination of vision, skill, ingenuity, and willingness to take risks that are needed to create and run new businesses

11. Ms. Curran January 6 August 21
Economics
Ms. Curran
January 6
August 21

12. Factors of Production Activity
You & and partner will be responsible for deciding what Land, Labor and Capital may be needed for each of the products listed on your sheet.

13. Economics
Ms. Curran
January 9
BW: Pretend you have traveled into the future. What is something you would like to produce or provide? Answer the 3 economic questions for your product/service.

14. Opportunity Cost
This one or that one?

15. Choices What shapes the economic choices people make?
Incentives – benefits offered to encourage people to act in certain ways
Utility – the benefit or satisfaction gained from the use of a good or service
Economize – make decisions according to what you believe is the best combination of cost and benefit

16. TANSTAAFL “There Ain’t No Such Thing As A Free Lunch.”
Everything costs something

17. Opportunity Cost
Opportunity Cost – the value of the next-best alternative
Trade-off – alternative people give up when they make choices
Cost-benefit analysis – weighing the benefits of an action against its costs

18. Example

19. Making Choice Chart

20. Economics
Ms. Curran
August 23
BW: Please define opportunity cost in your own words and give an example.

21. Production Possibilities

22. Possibilities!
Economic model – simplified representations of complex economic activities, systems, or problems, that help clarify trade- offs.
Production Possibilities Curve (PPC) – shows the impact of scarcity on an economy
Increases a company’s efficiency
But how?
By showing the maximum number of goods or services that can be produced using limited resources

23. PPC – What is it? PPC has 3 important economic concepts:
Scarcity affects production possibilities – people choose what to produce.
Trade-offs are made with any choice
Any choice has opportunity cost.

24. PPC Assumptions Based on four assumptions:
Resources are fixed – there is no way to get more land, labor, capital, or entrepreneurship.
All resources are being used – economy is at full production
Only two things can be produced – one variable on each axis
Ms. Curran says this makes graphing a lot easier… and we’re OK with that.
Technology is fixed – no technological advances will occur.

25. Example
Look at the pens
Company has options

26. Learning from PPC
Efficiency – condition in which economic resources are being used to produce the max amount of goods and services
Underutilization – condition in which economic resources are not being used to their full potential
On the graph
Point below the curve = underutilization
Point above curve = impossibility

27. The Production Possibilities Curve
Before we graph….
We must chart!

28. Production Possibilities Curve: Bread vs. Muffins12 10 8
Loaves of Bread 6 4 2 10 20 30 40 50 60 80 90
100
110
Bran Muffins

29. Whys it Curved Law of Increasing Opportunity Cost
As production switches from one product to another, increasingly more resources are needed to increase the production. This leads to an increase in opportunity cost.

30. Review for Test Make sure study guide is completed!
Review and come in with any questions tomorrow
Test Thursday 8/24