1. Unit 1: Fundamentals of Economics

2. Unit 1 Standards:
SSEF1, SSEF2, SSEF4, SSEF5, SSEF6, SSMI1

3. Unit 1: EQs What is scarcity? What are the factors of production?
How are limited resources allocated?
What trade-offs appear on a production possibilities frontier?
How are rational decisions made?
What are the similarities and differences of a command, market, and mixed economic system?
How does each economic system answer the three basic economic questions of what to produce, how to produce, and for whom to produce?
How does each economic system meet a society’s broad economic and social goals?
What is the role of government in a market economy?
How do goods and services flow in a market economy?
What is the role of money in a market economy?

4. Unit 1: Key Terms Scarcity Market economy Choice
Public goods and services
Opportunity cost
Property rights
Trade-offs
Market failures
Factors of production
Government regulations
Marginal thinking
Deregulation
Production
Circular flow diagram
Possibilities curve (frontier)
Product market
Factor market
Economic systems
Households
3 basic economic questions
Firms

5. SSEF1
SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.
a. Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources.
b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).
c. List a variety of strategies for allocating scarce resources.
d. Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

6. Scarcity
Scarcity is the fundamental economic problem of having seemingly unlimited human needs and wants, in a world of limited resources.
not all of society's goals can be pursued at the same time
trade-offs are made of one good against others.

7. Factors of Production A.K.A. productive resources
Anything used in the production of a good or service
They are classified into one of the following areas:
Land
Labor
Capital
Physical capital
Human capital
Entrepreneurship

8. Flash Presentation: Opportunity Cost

9. Land Private property Natural resources used in production
i.e. trees, coal, and wheat

10. Labor
People who provide skills that assist in the production of a good or service

11. Capital
Physical – technology, equipment, buildings, and tools that assist in the production of a good or service
Human – the knowledge and skills that assist in the production of a good or service
Example: taxi cab driver’s knowledge of city streets

12. Entrepreneurship
The risk-taking and managerial skills needed to start any business

13. What Productive Resource do they represent??

14. What type of productive resource is pictured???

15. What Factor of Production is in this lady’s brain????

16. I started a business making computers and other electronic devices
I started a business making computers and other electronic devices. I am an __________.

17. What Factor of Production do these represent?

18. Flash Presentation: Productive Resources

19. Opportunity Cost
the benefit that is lost in making a choice between two competing uses of scarce resources.
It is always the next best alternative.

21. Opportunity Cost
EXAMPLE: an individual has $25 to either purchase groceries or new clothes.  The individual weighs the choices against each other and decides that it’s more important to eat for the week and forgo the new pair of jeans.  The opportunity cost of the groceries is……

22. Activity Choose a product Divide paper up into four sections + label
In each section, draw the factors of production involved in the production of that particular good/service
Include AT LEAST 8 things
Land
Labor
Capital
Entrepreneurship

23. Example
LAND
LABOR
CAPITAL
ENTERPRENUERSHIP

24. GPS
SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action.
a. Illustrate by means of a production possibilities curve the trade offs between two options.
b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

25. What is a decision making grid?
Sometimes, making a decision can be complex or unclear
Putting this kind of information “on paper” can make the opportunity cost clear, and make the decision easier

26. Format for a simple decision making grid.
Alternatives
Choice 1
Choice 2
Benefits
Decision
Opportunity Cost
Benefits Forgone

27. Decision Making Grid: Studying
Example
Decision Making Grid: Studying
Alternatives
Sleep Late
Wake up early to study
Benefits
More sleep!
More energy during the day.
Better grade
Teacher and parental approval
Personal satisfaction
Decision
Opportunity Cost
Extra study time!
Extra sleep time!
Benefits Forgone
Better grade on the test
Personal Satisfaction
More sleep
More energy during the day!

28. Thinking at the margin Not all choices are all or nothing
Sometimes you can decide “how much” of one choice you can do and “how much” of the other
This is called “Thinking at the Margin”

29. Decision making at the Margin
OPTIONS
BENEFIT
OPPROTUNITY COST
1 hour of extra studying
Grade of a C on test
1 hour of sleep
2 hours of extra studying
Grade of a B on test
2 hours of sleep
3 hours of extra studying
Grade of an A on test
3 hours of sleep

30. Production Possibilities Curve
Graph used to various ways an economy can choose to utilize their resources
Two axes can show categories of goods (military vs consumer) or specific goods (guns v. butter)

31. Production Possibilities Curve
The frontier on a P.P.C. represents the maximum combination of goods that can be produced with current resources

32. Production Possibilities Curve
Point Y represents production beyond available resources
Can reach point Y with an increase in resources or better technology that allows more efficient production

33. Production Possibilities Curve
Point X represents underutilization
The economy is not using its resources efficiently to produce the maximum amount of goods

34. Opportunity Cost and PPC
In order to produce more of one good, you have to produce less of another
The amount of one item lost when increasing production of another is the opportunity cost

35. Economic Growth and PPC
A change in Factors of Production or technology will cause the PPC to “shift”
Increase = Shift right
Decrease = Shift left
Example: More land on a farm would increase the production possibilities for wheat and corn (shift right)

36. Activity
Create a table showing the production possibilities between two alternatives
Graph the points & create a Production Possibilities curve
Include 2 things that could cause Production Possibilities to increase
Sketch an additional curve showing growth
Include 2 things that could cause Production Possibilities to decrease
Sketch an additional curve showing reduction

37. 3 Economic Systems
Unit 1
Notes 3

38. GPS
SSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation.
b. Evaluate how well each type of system answers the three economic questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability.

39. 3 Key Economic Questions
Because resources are limited, all societies must answer the following:
What goods and services to produce?
How to produce?
For whom to produce?

40. Different Economic Systems

41. Traditional Relies on habit/custom to answer economic questions
Usually small/close communities
Slow to adapt to change

42. Market Economic questions answered by individuals
Buyers and sellers consider self-interest
Competition regulates the market

43. Market Advantages Disadvantages Freedom Efficiency Encourages growth
Consumers have a great deal of control
Less stability
Inequality

44. Command Governments answer economic questions Terms associated:
Socialism
Democratic means should be used to distribute wealth evenly though society
democracy
Communism
All economic and political power lies with the government
authoritarian

45. Command Advantages Disadvantages Guarantee jobs and income
Can jumpstart industry
Can not always meet consumer demands
No reward for innovation
Little individual freedom

46. Mixed
In reality, no one economic system can answer all economic questions
Most economies use aspects of both free market and centrally planned economics to accomplish their goals

47. GPS
SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact through flows of goods, services, and money.
a. Illustrate by means of a circular flow diagram, the Product market; the Resource (factor) market; the real flow of goods and services between and among businesses, households, and government; and the flow of money.
b. Explain the role of money as a medium of exchange and how it facilitates exchange.

48. Money in the Free Market
Players
Households
Own the factors of production and consume goods + services
Firms
Uses factors of production to produce a product

49. Money in the Free Market
Factors of production and products are exchanged in 2 markets
FACTOR MARKET (A.k.a. Resource Market)
Households supply Factors of Production to firms in exchange for money
PRODUCT MARKET
Firms supply households with goods and services in exchange for money

50. Multiple ways of showing this:

51. Money in a Mixed Economy
3rd player is added to market
Government
Factor market – purchases Factors of Production from households
Product Market – buys goods and services from firms
Government collects money from firms and households through taxes + provides goods and services

53. Activity:
Create a MARKET ECONOMY circular flow model using a specific business
Draw & label the firm and the household
20%
Show which way money is moving around the economy
Show which way goods/resources are moving around the economy
Explain what is happening in the factor market
Explain what is happening in the product market

54. GPS
SSEF5 The student will describe the roles of government in a market economy.
a. Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures.
b. Give examples of government regulation and deregulation and their effects on consumers and producers.

55. Promoting Strength
Because of the business cycle, the American government aims to stabilize the economy by
Keeping employment high
Unemployment between 3% and 6%
Keeping growth steady
Economy must grow with population for there to be jobs and goods for everyone
Keeping prices stable
Prevent inflation through regulating banks and businesses

56. Increasing Productivity
The Federal Government promotes technological innovation through federal agencies (like NASA) and by offering patents

57. Public Goods
The government provides goods when it is inefficient or impractical to
Make consumers pay individually
Exclude non-payers
Examples: parks, highways, police + fire service, and education

58. Free rider
With any public good, people who would chose not to pay can still benefit
These individuals are called “free riders”

59. Externalities
An economic side effect of a good or service that generates benefits or costs to someone other then the person deciding how much to produce or consume
Two Types:
Positive
Generates benefits for someone other then the individuals paying
Negative
Generates costs for someone other then the person paying for the good or service

60. Examples Positive Negative
Public education improves communities and impacts all households
Negative
A new airport would generate a great deal of noise, traffic, and pollution