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What is Economics?

What is Economics?. Chapter 1. Economics:. The study of how people seek to satisfy their needs and wants by making choices about how to use scarce resources. Needs: things NECESSARY for survival Wants: things we desire but are NOT ESSENTIAL to survival. Needs vs. Wants. Scarcity.

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What is Economics?

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  1. What is Economics? Chapter 1

  2. Economics: • The study of how people seek to satisfy their needs and wants by making choices about how to use scarce resources

  3. Needs: things NECESSARY for survival Wants: things we desire but are NOT ESSENTIAL to survival Needs vs. Wants

  4. Scarcity • Limited quantities of resources to meet unlimited wants

  5. Shortage • A situation in which a good or service is unavailable temporarily

  6. Factors of Production • Land • Labor • Capital • Human • Physical Remember these! You will hear them a lot this semester!

  7. Land Natural resources (land, coal, water, forests, etc.)

  8. Labor The effort people devote to a task for which they are paid

  9. Capital • Physical: Human made objects used to create other goods and services • Human: The skills and knowledge gained by a worker through education and experience

  10. Entrepreneurs • Ambitious leaders who combine land, labor, and capital to create and market new goods and services.

  11. Factors of Production Model LAND - cotton LABOR -seamstress ENTREPRENEUR –designer, business owner GOOD – t-shirt CAPITAL – thread, sewing machine.

  12. Factors of Production Model

  13. Opportunity Cost There is no such thing as a free lunch!

  14. Spring Break…Which would you choose? Hawaii New York Las Vegas Cancun ParisTokyo VailTahiti

  15. Individuals work or free time study or sleep Business Goods or Services Produce or Sell Trade-offs…options when you make a choice.

  16. Decision Making Grid

  17. Thinking at the Margin

  18. Production Possibilities Curves • Graphs that show alternative ways to use an economy’s resources

  19. Al's Coffee Shop! Coffee A 50 B 40 30 C 20 10 D 0 25 50 70 75 Tea

  20. Efficiency • Efficiency means using resources in such a way as to maximize the production of goods and services. • An economy producing output levels on the production possibilities frontier is operating efficiently.

  21. Coffee Productions possibilities frontier 50 Any production along this line is EFFICIENT 75 Tea

  22. Efficiency • Efficiency also means that in order to produce more of one good you must give up producing some of the other good. • This is because the line represents the limits that scarce resources place on our production possibilities.

  23. Coffee Tea Efficiency Coffee 50 40 20 0 0 50 70 75 A 50 B 40 30 C 20 10 D 0 25 50 70 75 Tea

  24. Underutilization • Any point inside the line indicates an underutilization of resources. • This economy is not using all of the resources that are available. • This economy is not producing all the goods and services it could be producing.

  25. Al's Coffee Shop! Coffee 50 Any production in this space is inefficient…you have the supplies but aren’t making the coffee or tea 75 Tea

  26. Growth • Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.”

  27. Al's Coffee Shop! Coffee 50 Al buys more equipment and now he can make even more coffee or tea! 75 Tea

  28. Law of Increasing Costs • As we shift resources from making one good to another, the cost of producing the second item increases. • In other words, we have to give up more and more of the first item for each additional unit of the second item. • This is because some resources are better suited for one purpose over another.

  29. Law of Increasing Costs Coffee Tea Coffee 50 40 20 0 0 50 70 75 A 50 B 40 30 C 20 10 D 0 25 50 70 75 Tea

  30. Chapter 1Things to think about…

  31. What is the difference between a good and a service?

  32. Why is the idea of scarcity a starting point for thinking economically?

  33. How is scarcity different from shortages?

  34. What special advantages does physical capital offer?

  35. What role do entrepreneurs play in the economy?

  36. Name three examples that illustrate how all decisions involve trade-offs.

  37. Why must the opportunity cost of a decision always be something desirable?

  38. What does the term “guns or butter” mean?

  39. What does it mean to “think at the margin”?

  40. What are the opportunity costs involved in:

  41. Eating pizza

  42. Going to see a movie on a Tuesday

  43. Going to see a movie on a Saturday

  44. Watching TV

  45. Studying for a test

  46. Finishing High School

  47. Getting Married

  48. Having a Kid

  49. Create a decision making grid to defend a decision you will make today

  50. Decide whether to work 2, 4, or 6 hours at an after-school job by comparing the opportunity cost and benefit of each alternative. Cost Benefit2 hours4 hours 6 hours

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