1. Scarcity and Opportunity Cost
Staker

2. ECONOMICS
Economics: the study of how people use scarce resources to satisfy unlimited wants
A different way of thinking about choices
Microeconomics: study of behavior and decision making by small units such as individuals, families & firms. -(Prices of single items, markets, business decisions)
Macroeconomics: study of the economy as a whole and decision making by large units such as governments and unions.

3. SCARCITY
SCARCITY: society doesn’t have enough resources to produce all the things people would like to have.
It is the fundamental economic problem

4. How do people deal with scarcity?
Scarcity forces us to choose
We can’t avoid making choices about resource use
Resources are anything we can use to attain our wants and needs.

5. The Rational Actor Model
Assumptions:
Humans are self-interested (not selfish, but act in ways consistent with our preferences)
Humans are rational (can choose behavior appropriate to achieve goals)

6. Are we rational?
A $20 toaster is on sale for ½ price across town. Would you go buy it?
An oven that sells for $500 at a nearby store is on sale for $490 across town. Which would you buy?

7. How do “rational” people make choices?
But costs and benefits are not always so easy to see!
Cost-Benefit Analysis:
Process of making choices by carefully weighing costs and benefits.

8. How do people make choices?
People try to maximize benefits and minimize costs

9. How can I maximize my utility?
Why?
Utility is simply happiness or satisfaction
People try to make good decisions in
order to increase utility
We try to make decisions
that give us the greatest utility
How can I maximize my utility?

10. Summarize then BREAK!!!!!!!
With a partner Summarize everything we have just discussed/ studied by writing a generalizing statement/sentence using the terminology form the standards words.
The BREAK – 4 minutes…..

11. Summary
In a world of scarcity, rational actors attempt to maximize utility by carefully weighing the costs and benefits of their decisions.

12. Cost Benefit Analysis:
Costs and Benefits of a High School Diploma

13. Cost Benefit Analysis: Costs & Benefits of a High School Diploma

14. Average Earnings by Highest Degree Earned: 2002

15. 10 years later
High School Diploma - 33,904
Bachelors – 55,432

16. Choices
Cost benefit analysis
A decision is economically “efficient” if the benefits outweigh the costs

17. Wants vs. Needs and Goods vs. Services
Wants=desires
Needs=necessities
Goods=physical objects such as clothes or shoes
Services=activities or actions that one person performs for another (mechanic, electrician)
Think of an example for each of these terms and put in your notes

18. TRADE-OFFS & OPPORTUNITY COST
Trade-offs: other choices you could have made when you spend your $ or time.
What are you giving up when you make a choice?
Opportunity Cost: the most desirable alternative given up when making a decision
Opportunity cost is the cost (VALUE) of the next best trade-off

19. Trade-offs
Example: Spending a little more time studying means you sacrifice watching t.v., talking on the phone, and listening to the Spice Girls

20. Trade-offs
Example: Hitting the snooze button involves sacrificing time to do your hair, eat breakfast, being in class, etc.

21. Trade-offs
Example: Building a new wing onto RV means giving up computers, books, parking lots, basketball courts, etc.

22. Any choice involves trade offs
Any choice costs you the opportunity to do something else

23. Opportunity cost is the runner-up in the choice contest.
I chose to _________, therefore, I couldn’t _____________.

24. OPPORTUNITY COST
Time spent, convenience also has an opportunity cost.

25. OPPORTUNITY COST

26. OPPORTUNITY COST What are the trade offs for going to dinner?
What was his opportunity cost for taking her to dinner? Why or why not?

27. 4 Factors of Production (C-E-L-L)
CAPITAL: tools, equipment and factories used to produce goods and services.
ENTREPRENEURS: people who take risks in search of profit; they start new businesses or bring new products to market.
LABOR: people with all their efforts, abilities and skills
LAND: gifts of nature, not created by human effort

28. 4 FACTORS OF PRODUCTION ILLUSTRATION ASSIGNMENT
Create an illustration about the 4 factors of production. The illustrations must be COLORED and should include:
A label of each of the 4 factors
A short description/definition of each factor
Pictures with at least 3 items representing each of the 4 factors. (3 pictures for capital, 3 for labor, 3 for land, etc.)

29. 3 Basic Economic Questions
WHAT to produce?
HOW to produce?
FOR WHOM to produce?
**Society must answer these 3 questions as long as there aren’t enough resources to satisfy the problem of scarcity**

30. 3 Basic Economic Questions
“Apple Computers to Begin Manufacturing Computers Made Specifically for Elementary Children”
“Powerade Will Be Sold in All High Schools Next Year.”

31. 3 Basic Economic Questions
“China Will Focus on Increasing Rice Production in 2007”
“DVD Players Will Now Be Manufactured Entirely by Robots”

32. 3 Basic Economic Questions
“United States Hopes to Become the World Leader in Potato Production”
“Henry Ford Revolutionizes Automobile Production by Using an Assembly Line”

33. Review Activity
Write 3 newspaper headlines on your own: one for each of the 3 Basic Economic Questions.
You will share one of them with the class and the class will guess which question your headline is addressing.

34. Create your own business
Imagine that you are an entreprenuer starting your own business.
First, what kind of business would it be? (What good or service are you providing?)
Be sure to give AT LEAST three aspects of LAND, 3 aspects of LABOR, and 8 aspects of CAPITAL needed to successfully run and manage your business.