1. What is Economics?!
Economics – the study of how people make choices to satisfy their needs and wants.
Need – Something people MUST have to survive, like air, food, and shelter.
Want – Something that people would LIKE to have but is not necessary for survival.
Scarcity – Limited resources to meet unlimited desires.
Shortage – Occurs when a good or services is CURRENTLY unavailable. Happens when people have trouble supplying goods and services at current prices.

2. What is Economics?!
Entrepreneurs – People who put together land, labor, and capital to create a new business.
Factors of Production
Land – natural resources like coal, water, and forests
Labor – work for which people receive pay
Capital – a human-made resource used to produce other goods and services.
Human Capital – the knowledge and skills people gain from study and experience
Physical Capital – Objects made by people, like buildings and tools.

3. Opportunity Cost Chapter 1, Section 2

4. Trade-offs and Opportunity Cost
All people make decisions that involve trade-offs
Trade-offs are all alternatives we give up when we make decisions
Opportunity Cost is the most desirable alternative we give up

5. Karen’s Decision-making Grid
Benefits
Enjoy more sleep
Have more energy during the day
Better grade on test
Teacher and parental approval
Personal satisfaction
Decision
Sleep late
Wake up early to study for test
Opportunity cost
Extra study time
Extra sleep time
Benefits forgone
Wake up early to study
Alternatives
Karen’s Decision-making Grid

6. Thinking on the Margin
Many decisions involve adding one unit or subtracting one unit
Such as one minute or one dollar
You decide how much more or how much less to do

7. Thinking on the Margin Options 1st hour of extra study time
2nd hour of extra study time
3rd hour of extra study time
Benefit
Grade of C on test
Grade of B on test
Grade of B+ on test
Opportunity Cost
1 hour of sleep
2 hours of sleep
3 hours of sleep

8. Production Possibilities Curves Chapter 1 Section 3

9. Production Possibilities
A production possibilities graph show alternative ways that an economy can use it resources
The production possibilities frontier is the line that shows the maximum possible output for that economy

10. Production Possibilities Curve
Watermelons (millions of tons)
Shoes (millions of pairs) 25 20 15 10 5
Production Possibilities Graph
What is the opportunity cost of the decision shown here?

11. Watermelons (millions of tons) Shoes (millions of pairs)
What is the opportunity cost of choosing to produce the combination of goods shown at point A instead of point B?
Watermelons (millions of tons)
Shoes (millions of pairs) 25 20 15 10 5
Production Possibilities Graph

12. Shoes (millions of pairs) Watermelons (millions of tons)
Efficiency
Shoes (millions of pairs) 25 20 15 10 5
Watermelons (millions of tons)
Production Possibilities Graph
Using resources in such a way as to maximize the production of goods
If an economy is operating efficiently, the points will be on the PPF

13. Shoes (millions of pairs) Watermelons (millions of tons)
Growth
Growth is when more resources become available of if technology improves
It causes the economy to grow
The entire PPF will shift to the right
Inefficiency is shown by a point inside the PPF
Shoes (millions of pairs) 25 20 15 10 5
Watermelons (millions of tons)
Production Possibilities Graph
How does a society benefit when it invests money in the development of new technologies?

14. Cost
The Production Possibilities Graph shows what happens when going from item to the next
The movement from one point to the next will show the cost

15. The Law of Increasing Costs

16. The Law of Increasing Costs

17. The Law of Increasing Costs
According to this diagram, what is the cost of increasing watermelon production?