1. Economic Principles – chapter 18 _...

2. Vocabulary chapter 28 Economics Opportunity Cost Microeconomics
Fixed Costs
Macroeconomics
Variable Costs
Economic Systems
Total Costs
Scarcity
Marginal Costs
Need
Marginal Benefit
Want
Cost Benefit Analysis
Trade-off

3. What is Economics?
Economics: Study of how decisions are made when resources are limited.
Economy
All activity that affects production, distribution & use of goods & services
Economists study past and present to predict the future. Based on assumptions
Businesses & government make decisions based on models
Just like science they use examples.
What is wrong with this? Can’t predict the future.

4. Scarcity: There is not enough time, money or resources to produce everything everyone wants.
This is the fundamental problem of economics and it affects individuals, businesses, and countries - Everyone
Because of Scarcity we must answer 3 questions in economics
What to Produce?
How to Produce?
Whom to produce for?
What to produce – examples public services or defense (guns or butter) Ex: North Korea more weapons than food
How to produce – what type of industry? Or pollution vs manufacturing, or oil vs wildlife
Whom to produce for? – how will the goods be distributed and at what cost? – Price determines who it goes to

5. Economic Decision Making
The goal as a decision maker is to make rational, reasonable choices with the limited resources that we have.
You have to choose between your needs and your wants
Need: things needed for survival
Want: luxuries – things we would like to have

6. Which of the following best describes scarcity?
Not enough goods for everyone
Not enough resources to provide every desire
Lack of desire to produce enough resources
The amount that people want

7. What is the fundamental economic problem?
Money
Time
Scarcity
Economics

8. All of the following are questions we must ask because of scarcity except:
When to produce?
How to produce?
What to produce?
Whom to produce for?

9. Making Economic Decisions
Scarcity forces people to make choices.
You must take into account all of the costs and benefits when making an economic decision
These economic choices involve trade offs and opportunity costs

10. Trade-off: Decision that must be made when choosing between items
Trade-off: Decision that must be made when choosing between items. Doing one thing over another
Ex – Do you want vanilla or chocolate ice cream?
Opportunity cost: Value of the next best alternative that was given up when a choice was made The value is time or money.
When choosing to do something, you lose. You lose the ability(opportunity) to do something else with your time or money
Ex. Choosing to go to the movies instead of spending that same time doing homework or going to a game.

11. What was the opportunity cost of passing the Health Care Bill?
More people will have health care coverage.
Grandparents will be put to sleep because of Death Panels.
Obama will become the Devil and the Four Horseman will arrive.
The government will have less money to spend on other services like the military.

12. All Costs Are Not The Same
Fixed Costs - Expense is the same no matter how much is produced
Example – Rent – It will not change
Variable Costs - Expenses that change with number of items produced.
Example – materials, wages
Fixed Costs + Variable Costs = Total Cost
Marginal Cost - extra cost of produce one more unit of product
Cost Benefit analysis graph pg 508 – businesses use cost-benefit analysis to compare the marginal benefit to the marginal cost to make an economic decision.

13. Cost Benefit Analysis Why do you usually do something?
Marginal Benefit
additional benefit for producing one more unit.
Is it worth it? If not, why do it?
To achieve a benefit!

14. Cost Benefit Analysis (cont.)
Cost Benefit Analysis: An economic model used to compare the marginal costs and marginal benefits of a decision.
You choose the action when the benefits outweigh the costs; if costs outweigh the benefits, it time to walk away.
Ex. Farmer deciding how many acres to plant

15. What is an example of a fixed cost of doing business?
Wages
Cost of fuel
Price of materials
Rent on a building