Welcome to Economics

1. Welcome to Economics

2. Topics For Review • Note Books • Text Books • Cell Phones • Test Review • Passes

3. Grading Scale • Test……...……...40% • Quiz…………….35% • Daily Work….….15% • Participation.......10% • Total……..…….100%

4. Scarcity and the Science of Economics Chapter 1

5. Vocabulary for Chapter 1 13. Market 14. factor market 15. product market 16. Economic growth 17. productivity 18. Specialization 19. Trade-off 20. Opportunity cost 21. production possibilities frontier 1. Scarcity 2. Economics 3. Factors of production 4. Land 5. Capital 6. Labor 7. Gross Domestic Product (GDP) 8. consumer good 9. capital good 10. Service 11. utility 12. wealth

6. The central economic problem • Scarcity: unlimited wants and limited resources (or not having enough resources to produce all things people would like to have. • TINSTAAFL– “There is no such thing as a free lunch”. Even if it seems free, someone is paying

7. 3 Basic Economic Questions • 1. WHAT to produce? Food, military equipment, or what? • 2. HOW to produce? Utilize more workers, or more technology? • 3. FOR WHOM to produce? Who will benefit from the production?

8. The 4 Factors of Production • Resources include • Capital: equipment used to produce goods • Entrepreneurs: who organizes the other resources and takes the risk • Labor: workers • Land: natural resources

9. Measuring Production • Gross Domestic Product (GDP) • The Dollar value of all goods and services produced in a country’s borders in a 12 month period. • In order for the U.S. to accommodate people entering its workforce, its GDP needs to grow about 3.5% per year.

10. Basic Economic Concepts • GDP measures the economic products of an economy • Economic products are: • Goods • Consumer goods • Capital goods: goods used to produce other goods • Services: work performed for someone

11. Other Relevant Terms • Paradox of Value: some necessities have little value, whereas some non-necessities have a much higher value. • Utility: the capacity for something to be useful • Wealth: the accumulation of products which are valuable

12. The Circular Flow • Factor Markets: the manufacturing level of the cycle. Where products are made; where our labor is “sold” • Product Markets: Where consumers buy the finished products

13. The Circular Flow of the Economy Business Income Product Markets Consumer Spending Goods & services sold Goods & Services bought Businesses Households Factors of production Factor Markets Payments for Resources Income from Resources

14. How Economic Growth Occurs • Economic Growth occurs when GDP increases. It occurs through • Productivity: when we produce more goods with the same amount of inputs • Division of labor and specialization • Investing in human capital: improving education • Increasing the labor force

15. Economic Choices • Decisions must be made. • Trade-offs, or alternative choices, result. • Opportunity Cost. The cost of choosing one good is giving up another. The cost of the next best alternative is the opportunity cost.

16. Production Possibilities Curve • A production possibilities “frontier” is a graphic diagram showing various combinations of production which is possible in an economy. (see next slide)

17. Illustrating opportunity cost • Simple models show economic problems with two variables. • It is assumed that the variables are the only factors that change. Increased production of one good causes decreased production of the other. The decreased production is the opportunity cost of the increase.

18. More on production possibilities • Points inside the curve (to the left) show inefficiency. • Points outside the curve are impossible without increased resources or improved technology. • Points on the curve are possible if all resources are fully employed.

19. Reaching the impossible • An increase in available resources or improved technology can result in economic growth.

20. Increasing opportunity cost • The opportunity cost of an additional storage shed (8 to 9) is 70 baseballs. • Storage shed production results in increasing opportunity costs. • A convex curve always indicates increasing opportunity cost.

21. Important QuestionsChapter 1 • Why is scarcity the underlying problem of economics? (2 Points) • What are the 3 basic economic questions every society must decide? (3 Points) • What is the relationship between scarcity, value, utility, and wealth? (5 Points) • What does the circular flow model demonstrate? (3 Points) • What is the opportunity cost of you attending college? (2 Points) • What is the production possibilities curve and how does it change? (5 Points)