1. Please take out 1 piece of graph paper Clear your desk except for something to write with & a straight edge

2. Production Possibilities Feb 27, 2014

3. Review Questions I do this the after nearly every discussion/lecture I do this the after nearly every discussion/lecture You CANNOT read from your notes to answer them You CANNOT read from your notes to answer them Expect it Expect it Prepare for it Prepare for it Review the previous notes before class Review the previous notes before class EASY class participation points EASY class participation points

4. Review Questions

5. What’s another term for “Resources”? Factors of Production Factors of Production

6. Give me 1 of the 5 types of resources Land Land Labor Labor Capital Capital Technology Technology Entrepreneurship Entrepreneurship

7. What’s the basic/core problem? SCARCITY!!!!! SCARCITY!!!!! Unlimited wants and limited resources Unlimited wants and limited resources

8. What’s the formal definition for “Economics”? The study of how people and nations make choices about how to use their scarce resources to fill their needs and wants The study of how people and nations make choices about how to use their scarce resources to fill their needs and wants

9. Trade-Offs All of the alternatives when a decision is made All of the alternatives when a decision is made

10. Opportunity Costs The next best alternative that had to be given up for the alternative that was chosen. The next best alternative that had to be given up for the alternative that was chosen.

11. Opportunity Benefit What is gained when a decision is made What is gained when a decision is made

12. End of Review

13. 3 basic/core issues/economic questions that all economies have to address WHAT to produce with our limited resources WHAT to produce with our limited resources HOW to produce the goods and services HOW to produce the goods and services FOR WHOM the goods and services should be produced FOR WHOM the goods and services should be produced

14. Goods Versus Services In this class, we will use the terms “Goods and Services” often. In this class, we will use the terms “Goods and Services” often. What’s the difference between the two? What’s the difference between the two?

15. Goods Tangible items that businesses produce and/or sell Tangible items that businesses produce and/or sell Examples? Examples?

16. Services Non-tangible work that businesses complete in exchange for money Non-tangible work that businesses complete in exchange for money Examples? Examples?

17. Production Possibilities the alternative combination of final goods & services that could be produced using all of a country’s resources & tech. the alternative combination of final goods & services that could be produced using all of a country’s resources & tech.

18. The Production Possibilities Curve A B C D E F OUTPUT OF TRUCKS 5 4 3 2 1 012345 OUTPUT OF TANKS

19. Production Possibilities Illustrates The Principle of Opportunity costs – we can obtain additional quantities of any desired good only by reducing the potential production of another good. Opportunity costs – we can obtain additional quantities of any desired good only by reducing the potential production of another good.

20. Step 1: give up one truck Step 2: get two tanks Step 3: give up another truck Step 4: get one more tank A B C D E F OUTPUT OF TRUCKS 5 4 3 2 1 012345 OUTPUT OF TANKS

21. The Cost of North Korea’s Military MILITARY OUTPUT FOOD OUTPUT A O B Reduced food output Military buildup N D P H C G

22. 0.5 0.9 1.0 1.2 2.7 2.8 3.4 3.8 4.1 12.0 16.3 Jamaica Mexico Japan Canada Germany India S. Korea USA Bosnia China Saudi Arabia N. Korea 1.5 The Military Share of Output Percent of Output Allocated to Military

23. Efficiency Efficiency means getting the maximum output of a good from the resources used in production. Efficiency means getting the maximum output of a good from the resources used in production. Every point ON a production possibilities curve is EFFICIENT. Every point ON a production possibilities curve is EFFICIENT.

24. Inefficiency A production possibilities curve shows potential output, not necessarily actual output. A production possibilities curve shows potential output, not necessarily actual output. If we are inefficient, actual output will be less than the potential output. If we are inefficient, actual output will be less than the potential output.

25. Countries may end up inside their production possibilities curve if resources are inefficiently used. Countries may end up inside their production possibilities curve if resources are inefficiently used.

26. Inefficiency OUTPUT OF TANKS A B C Y 5 4 3 2 1 0 12345 OUTPUT OF TRUCKS Inefficiency

27. A point outside the production possibilities curve suggests that we could get more goods than we are capable of producing! A point outside the production possibilities curve suggests that we could get more goods than we are capable of producing! Is this possible?! Is this possible?!

28. Economic Growth OUTPUT OF TANKS A B C X 5 4 3 2 1 0 12345 OUTPUT OF TRUCKS Currently not attainable

29. Economic Growth An expansion of production possibilities. An expansion of production possibilities. How? How? An increase in the quantity and/or quality of a country’s factors of production An increase in the quantity and/or quality of a country’s factors of production Land Land Labor Labor Capital Capital Entrepreneurship Entrepreneurship Technology Technology

30. Economic Growth When economic growth occurs... The production possibilities curve shifts outward.

31. Economic Growth 0 PP 1 PP 2 OUTPUT OF TANKS OUTPUT OF TRUCKS

32. What would have to occur for a country’s PPC to shift outward? What would have to occur for a country’s PPC to shift outward? An increase in quality or quantity of a country’s An increase in quality or quantity of a country’s Land Land Labor Labor Capital Capital Entrepreneurship Entrepreneurship Technology Technology

33. What would have to occur for a country’s PPC to shift inward? What would have to occur for a country’s PPC to shift inward? A decrease in quality or quantity of a country’s A decrease in quality or quantity of a country’s Land Land Labor Labor Capital Capital Entrepreneurship Entrepreneurship Technology Technology

37. Neatly & Somewhat Small, write the job that you decided to take