1. UNIT 1 – Chapter 1
Honors Economics – Mrs. Martini

2. Chapter 1: Exploring Economics
Module 1: What Is Economics?
Module 2: Production Possibilities for Nation
Module 3: The World of Economics

3. WHY STUDY ECONOMICS? Make sense of the daily news
Make good decisions about your time and money
Lead a happier, more satisfying life
Cave-o-nomics!
SO…
Economics provides a framework for understanding the world around you.
Economics helps you evaluate messages from advertisers, the media, and people trying to take your money. (Like Bernie Madoff

4. MODULE 1: What is Economics?
KEY IDEA:
Economics deals with the choices we make, individually and as a society, under conditions of scarcity.
OBJECTIVES:
To explain what economics is and why it is important.
To define opportunity costs.
To differentiate between wants and needs.
To name society’s key economic resources.

5. 2 Basic Forms of scarcity…MONEY & TIME
Scarcity Implies Tradeoffs
Economics…the study of choice under conditions of scarcity.
Scarcity…exists when we WANT more of something than we can have.
2 Basic Forms of scarcity…MONEY & TIME
So…
You make a tradeoff when you give up one thing to get something else. This means you make tradeoffs to deal with the problem of scarcity.

6. Opportunity Cost
The opportunity cost of a choice is the value of the next- best alternative given up when that choice is made.
Think of the example of coming to school. The choice to cut class is an option but the opportunity cost is too high for most students.

7. Scarcity and Society Needs and Wants
Needs are minimal requirements of things such as food, water, and shelter that are necessary for survival.
Wants are things that are desired but are not essential to life.
An economy coordinates the production and distribution of goods and services.

8. Scarcity and Society Goods and Services
Goods are physical items produced in an economy, such as jeans, tennis rackets, popcorn, cars, and homes.
Services are activities produced in an economy, such as education, entertainment, and health care. Usually consumed at the time they are produced!

9. Scarce Economic Resources
Resources are the basic elements from which all goods and services are produced. AKA Inputs 1. Land is anything drawn from nature for use in the production of goods or services. 2. Labor is the time and effort people contribute to the production process.

10. Scarce Resources…cont.
3. Capital is anything long lasting that is created by humans for use in production. Physical vs. Human 4. Entrepreneurship is the willingness of people to organize, operate, and assume the risks involved with business ventures.

11. Key to the study of Economics
Scarce Resources
Key to the study of Economics
Resources are limited
ALL societies must make tradeoffs
Certain resources are FINITE
Scarcity is a situation that can NEVER BE ELIMINATED…

12. DEEP THOUGHTS… PONDER THE FOLLOWING:
A need can be a want…but, can a want be a need?

13. What is wrong with this statement?
“We will create an America where every job is a good job!”
Paraphrased form William Jefferson Clinton during his 1992 campaign.

14. MODULE 2: Production Possibilities for a Nation
KEY IDEA:
A production possibilities frontier illustrates the tradeoffs society makes in its use of scarce resources.
OBJECTIVES:
To explain why economists use models.
To present and interpret the production possibilities frontier model.
To explain the law of increasing opportunity cost.
To define the concepts of efficiency and growth.

15. Economists use modeling to simplify reality.
Economics Models
Economists use modeling to simplify reality.
Models help to focus on selected aspects of the real world by stripping away nonessential details.

16. The Production Possibilities Frontier (PPF)
A production possibilities Frontier (PPF) is a model that shows alternative ways that an economy can use its scarce resources
This model graphically demonstrates scarcity, trade-offs, opportunity costs, and efficiency and economic growth.

17. Production and Society
4 Key Assumptions
Only two goods can be produced
Full employment of resources
Fixed Resources (Ceteris Paribus)
Fixed Technology
TINSTAAFL – No Free Lunch!
Milton Freidman
Production and Society

18. How does the PPF graphically demonstrate scarcity, trade-offs, opportunity costs, and efficiency?14 12 10 8 6 4 2
Impossible/Unattainable
(given current resources) A B G C
Bikes
Efficient D F
Inefficient/ Unemployment E
Computers 18

19. Opportunity Cost 1. The opportunity cost of moving from a to b is…
Example:
1. The opportunity cost of moving from a to b is…
2 Bikes
2.The opportunity cost of moving from b to d is…
7 Bikes
3.The opportunity cost of moving from d to b is…
4 Computer
4.The opportunity cost of moving from f to c is…
0 Computers
5.What can you say about point G?
Unattainable 19

20. Opportunity Costs for Society
The law of increasing
opportunity cost states that the opportunity cost of a good rises as more of the good is produced.

21. PRODUCTION POSSIBILITIES
A B C D E
CALZONES
PIZZA
List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.
Constant Opportunity Cost- Resources are easily adaptable for producing either good.
Result is a straight line PPF (not common) 21

22. A different scenario: A B C D E PIZZA 18 17 15 10 0 ROBOTS 0 1 2 3 4
List the Opportunity Cost of moving from a-b, b-c, c-d, and d-e.
Law of Increasing Opportunity Cost-
As you produce more of any good, the opportunity cost (forgone production of another good) will increase.
Why? Resources are NOT easily adaptable to producing both goods.
Result is a bowed out (Concave) PPF

23. How much each marginal unit costs
PER UNIT
Opportunity Cost
How much each marginal unit costs
= Opportunity Cost
Units Gained
Example:
1. The PER UNIT opportunity cost of moving from a to b is…
1 Bike
2.The PER UNIT opportunity cost of moving from b to c is…
1.5 (3/2) Bikes
3.The PER UNIT opportunity cost of moving from c to d is…
2 Bikes
4.The PER UNIT opportunity cost of moving from d to e is…
2.5 (5/2) Bikes
NOTICE: Increasing Opportunity Costs 23

24. 3 Shifters of the PPC PRODUCTION POSSIBILITIES
4 Key Assumptions Revisited
Only two goods can be produced
Full employment of resources
Fixed Resources (4 Factors)
Fixed Technology
What if there is a change?
3 Shifters of the PPC
1. Change in resource quantity or quality
2. Change in Technology
3. Change in Trade 24

25. Efficiency and Growth
Economic growth is an increase in the ability to produce goods and services over time.
PPF moves due to more resources, more training for labor, greater productivity, or even trade with other countries.
The term is scarcity. We have limited resources to add to our capacity to produce.

26. ADAM SMITH: The Father of Classical Economics
An Inquiry into the Nature and Causes of the Wealth of Nations (aka The Wealth of Nations)
Self interest guides behaviors of buyers and sellers
Market system allows us to make best decisions for ourselves
Competition = the “invisible hand”
Laissez-Faire

28. MODULE 3: The World of Economics
KEY IDEA:
There are two types of economics that differ in regard to the topics economists study and the types of questions they ask.
OBJECTIVES:
To explain the difference between microeconomics and macroeconomics.
To differentiate positive and normative economics.
To identify terms that have special meanings in economics.

29. Microeconomics
The study of how people make decisions and how those decisions affect others In the economy.
Microeconomics Example Topics:
- Profits
- Markets
- Pollution

30. Macroeconomics
The study of the economy as a whole.
Macroeconomics Example Topics:
- Inflation
- Interest rates
- Government spending

31. Wages and Economics
A degree in economics can allow people to work in many places in both government and the private sector.

32. Normative Economics
Normative economics is the study of the way things should be rather than the way things are. Normative economics brings opinions and ideals into the process of answering questions.
Normative questions include:
• Should our country do more to help the poor?
• Should college athletes be paid to perform?
Use the Activity Learning TE activity before or after this slide show to reinforce this concepts

33. Positive Economics
Positive economics is the study of what the world is like and why it works the way it does. It is about facts and cause- and- effect relationships.
Positive questions include:
• How many teenagers live in poverty?
• Do people buy more or less Coke when their incomes increase?

34. The Language of Economics
In economics, a market is not a place but a collection of buyers and sellers, wherever they may be. Markets coordinate prices through demand and supply. Markets help society understand the problem of scarcity.