1. WHY SOCIETIES HAVE ECONOMIES
Wants
The basics: food, clothing, shelter
We usually want more

2. WHY SOCIETIES HAVE ECONOMIES
RESOURCES
Factors of production: resources people have for producing goods/services to satisfy wants
labor – workers
land – natural resources (soil, minerals, wildlife, energy)
capital – anything that is used to produce other goods/services.
Includes tools, machines, or buildings used to produce goods/services.

3. WHY SOCIETIES HAVE ECONOMIES
Production, Distribution, and Consumption
produce (make a good)
distribute it to people
consumption – act of buying & using goods/services
Want-Satisfaction Chain (page 290)

4. Want-Satisfaction Chain

5. WHY SOCIETIES HAVE ECONOMIES
Making Choices
Benefits & Costs
opportunity cost – the benefit given up when scarce resources are used for one purpose instead of the next best purpose.
Example: when you choose to spend your money on clothes instead of future savings what are you giving up?

6. WHY SOCIETIES HAVE ECONOMIES
Scarcity
Resources are limited
People always have more wants and needs then available resources

7. The Production Possibilities Curve (PPC) Using Economic Models…
Step 1: Explain concept in words
Step 2: Use numbers as examples
Step 3: Generate graphs from numbers
Step 4: Make generalizations using graph 7

8. What is the Production Possibilities Curve?
A production possibilities graph (PPG) 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.
4 Key Assumptions
Only two goods can be produced
Full employment of resources
Fixed Resources (Ceteris Paribus)
Fixed Technology 8

9. Production “Possibilities” Tablef 14 12 9 5 2 4 6 8 10
Bikes
Computers
Each point represents a specific combination of goods that can be produced given full employment of resources.
NOW GRAPH IT: Put bikes on y-axis and computers on x-axis 9

10. Production Possibilities
How does the PPG graphically demonstrates 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
Inefficient/ Unemployment E
Computers 10

11. Opportunity Cost 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 11

12. The Production Possibilities Curve (or Frontier)12

13. 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 PPC (not common) 13

14. Production Possibilities
A B C D E
PIZZA
ROBOTS
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) PPC

15. Constant vs. Increasing Opportunity Cost
Identify which product would have a straight line PPC and which would be bowed out?
Corn
Cactus
Wheat
Pineapples

16. Trade & Comparative Advantage
Comparative Advantage: The ability to produce something at a lower opportunity cost than other producers.
Law of Comparative Advantage : An individual, firm, region or country with the lowest opportunity cost of producing a good should specialize in that good.
Absolute Advantage: The ability to produce something using fewer resources than other producers.

17. Specialization, Exchange and Comparative Advantage
According to the theory of competitive advantage, specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers.

18. Absolute Versus Comparative Advantage
Output per Day of Work
Food
Clothing
Country A 6 3
Country B 1 2
Country A has an absolute advantage because it can produce more food and more clothing in one day than country B.
Country A has a comparative advantage in the production of food because a worker in country A can produce 6 times as many units of food as a worker in country B, but only 1.5 as many units of clothing.

19. Absolute Versus Comparative Advantage
Output per Day of Work
Food
Clothing
Country A 6 3
Country B 1 2
The opportunity costs can be summarized as follows:
For food:
1 unit of food costs country A ½ unit of clothing.
1 unit of food costs country B 2 units of clothing.
For clothing:
1 unit of clothing costs country A 2 units of food.
1 unit of clothing costs country B ½ unit of food.

20. Absolute Versus Comparative Advantage
Output per Day of Work
Food
Clothing
Country A 6 3
Country B 1 2
Conclusion:
Country A will specialize in producing food, and country B will specialize in the production of clothing.
Specialization also works to develop skills and raise productivity.

21. BASIC ECONOMIC DECISIONS
ECONOMICS
BASIC ECONOMIC DECISIONS

22. BASIC ECONOMIC DECISIONS
What and How Much to Produce?
What resources are available?
What are the peoples’ wants?
How much does society need?

23. BASIC ECONOMIC DECISIONS
How to Produce Goods and Services (Resources)
Technology – can produce goods cheaper and faster

24. BASIC ECONOMIC DECISIONS
Who Will Get What Is Produced? Questions to ask:
Should goods/services be divided equally?
Should you receive goods/services on the basis of what you want?
Should a small group of people decide who receives what?
Should people who own more resources and produce more goods/services get more or own and produce less?

25. THREE TYPES OF ECONOMIES
ECONOMICS
THREE TYPES OF ECONOMIES

26. THREE TYPES OF ECONOMIES
A Traditional Economy
Traditional economy – basic economic decisions are made by long-established ways of behaving that are unlikely to change.
Few exist today

27. THREE TYPES OF ECONOMIES
Command Economy – government owns or controls factors of production (land, labor, capital) and makes the basic economic decisions.
Karl Marx and “The Communist Manifesto”
What to produce?
How much to produce?
Who will get what is produced?
Communist nations – Cuba, North Korea, former USSR
Cuba – entrepreneurs
Real estate

28. THREE TYPES OF ECONOMIES
Market Economy – system in which private individuals own factors of production are free to make economic decisions about production, distribution, and consumption.
Market – place where buyers/sellers agree to exchange goods/services
No one person runs economy.
Decision Making by Individuals
We can choose what we want to do (work) If we make more money we acquire more resources = The ”Who will get what?” decision

29. THREE TYPES OF ECONOMIES
Competition & Profit Seeking
Producers compete to satisfy wants of consumers
Profit – difference between what it costs to produce a good/service and the price the buyer pays for it
Invest – use your money to help a business grow; with the hope that you can get a piece of the profit.
Free Enterprise- individuals in a market economy are free to undertake economic activities with little or no governmental control
Capitalism – system in which people make their own decisions about how utilize capital, land, and labor to produce goods and services.
Adam Smith and “The Wealth of Nations”

31. THREE TYPES OF ECONOMIES
Modern – Day Economies
mixed economies – mixture of three basic systems
China – Communist government
Command to mixed (now more of a market economy)
What has happened?
United States
Usually considered a market economy
Has elements of command economy
Map

32. Koppel on Discovery: China Chinese Ghost Towns North Korea