UNIT 2: The Choice is Yours!

1. UNIT 2: The Choice is Yours! Basic economic concepts, choices, rational decision making, investment in education/training, etc

2. Unit 2 standards 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 (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. 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 tradeoffs between two options. b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

3. Unit 2 standards (continued) SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people. a. Define productivity as the relationship of inputs to outputs. b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth. c. Give examples of how investment in education can lead to a higher standard of living. SSEPF1 The student will apply rational decision making to personal spending and saving choices. a. Explain that people respond to positive and negative incentives in predictable ways. b. Use a rational decision making model to select one option over another. c. Create a savings or financial investment plan for a future goal.

4. Factors of Production(Productive Resources)

5. GPS SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments. Define and give examples of productive resources (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).

6. Factors of Production What went into making this?

7. What went into this? Rubber (from Malaysia) machines metal Someone who put all of this together. wood graphite

8. 4 Categories of Productive Resources (Factors of Production) LANDLABOR CAPITALENTREPRENUERSHIP • Natural, renewable resources • wood, rubber, graphite, land, animals • Human resources, people • MENTAL and PHYSICAL • A produced good used in the production of another good • Machines, computers, buildings, etc • The person or group responsible for putting the other 3 together to produce something

9. Opportunity Costs

10. Opportunity Costs OPPORTUNITY COSTS: the value of the NEXT BEST alternative given up when a choice is made NEXT BEST is key, the cost is not everything you give up Opportunity cost is not always money

11. Opportunity Costs Examples Mr. Cannon really wants BOTH goods: $3,500 $1,000

12. Opportunity Costs Examples He decides to spend his money on: $3,500 What was the price he paid? What was his opportunity cost?

13. Opportunity Costs You have $100 to spend at the mall, rank the following in the order (1, 2, 3) you would purchase them. DVD set of a TV Show($60) New outfit ($85) New pair of shoes ($65)

14. Production Possibilities Curve (PPC)

15. GPS SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action. Illustrate by means of a production possibilities curve the trade offs between two options.

16. PPC a graph that shows the trade-off between two production options A visual representation of OPPORTUNITY COSTS 2 Assumptions: The company/country is ONLY producing the two goods on the graph The company/country desires to use ALL of their resources

17. PPC – an example Suppose a country makes Pencils and Pens. If they devoted ALL of their resources to pencils, they could make 500 a day 500 300 …..to pens, they could make 300 a day

18. PPC – an example The country/business can produce anywhere on the line when they use ALL of their resources 500 Pencils Pens 300

19. PPC – an example If the country is producing ONLY pencils, and they want pens, they have to give up pencils. 500 450 Pencils The more pens they want….. 200 Pens 125 200 300

20. PPC – an example Y At point X, the country or business is producing below its possibilities and is INEFFICIENT 500 Pencils X At point Y, the country or business is producing beyond its possibilities and is NON-SUSTAINABLE. 200 Pens 75 300

21. Journal #5: Graph this country’s PPC • After graphing, answer these questions: • Assume the country is currently producing 180 of good A and 25 of Good B. If the country wants to make 75 of Good B, how many of good A must they give up? • If the country was producing 150 of Good A and 30 of Good B, what could you conclude about the country’s economy?

22. Productivity and Investment

23. GPS Define productivity as the relationship of inputs to outputs.

24. Productivity We measure productivity as the relationship of inputs to outputs For a business it’s the cost of all their resources compared to their revenue For a country it’s the cost of all of their resources as compared to their GROSS DOMESTIC PRODUCT (GDP)

25. Improving Productivity Increased Capital More factories, tools, machines, etc Improve technology Faster machines, multi-tasking devices, machines with larger capacity Train/educate workers Specialization, new techniques, ability to USE technology Improve entrepreneurship Better organization of resources, motivational tools, leadership, worker morale

26. Headlines HEADLINE 1: WHIRLPOOL FACTORY INCREASES PRODUCTIVITY What are some steps the Whirlpool Factory could have taken to increase productivity? How could this increase in productivity benefit the workers? HEADLINE 2: U.S. PRODUCTIVITY RISES RAPIDLY FOR 6TH CONSECUTIVE QUARTER How can rising productivity benefit workers? Producers? The nation? Could there be some disadvantages of increasing productivity, at least to some people? HEADLINE 3: PRODUCTIVITY LAGS FIRST THREE QUARTERS OF 93 Why is lagging productivity a problem for the nation, businesses, and individual workers and consumers?

27. Economic Growth

28. GPS Give illustrations of investment in equipment and technology and explain their relationship to economic growth. Give examples of how investment in education can lead to a higher standard of living.

29. Economic Growth For countries, we look at economic growth in terms of GROSS DOMESTIC PRODUCT (GDP) and GDP PER CAPITA GDP = dollar amount of all goods and services produced in an economy GDP Per Capita = GDP divided by the population What makes an economy grow?

30. Factors Affecting Economic Growth High Investment in physical and human capital Greater economic freedom lower taxes, fewer regulations, protecting property rights Strong Incentives to Save Competitive Markets Political Stability Free Trade

31. Historic examples Cotton Gin in America Before Cotton Gin: 1 man = 1 pound of clean cotton After Cotton Gin: 1 man = 50 pounds of clean cotton

32. Historic examples Assembly Line Before AL: .08 car frame in an hour (1913) After AL: .67 car frame in an hour (1914)

33. Historic Examples Wheat Harvesting (Bushels in 1 hour) 180019002000 .26 .96 25

34. Literacy Rates

35. Rank these countries Country A: Argentina Population: 37,384,816 PerCapita GDP: $12,900 Literacy Rate: 96.2% • Country C: Nigeria • Population: 126,635,626 • PerCapita GDP: $950 • Literacy Rate: 57.1% • Country D: Russia • Population: 145,470,196 • PerCapita GDP: $7,700 • Literacy Rate: 98% • Country B: Japan • Population: 126,771,662 • PerCapita GDP: $24,900 • Literacy Rate: 99% • Country E: Singapore • Population: 4,300,419 • PerCapita GDP: $26,500 • Literacy Rate: 93.5%

37. Economic Growth Capital Goods Consumer Goods • Not 1 magical thing, combination of several factors • Increasing overall productivity is key

38. Factors Affecting Economic Growth High Investment in physical and human capital Greater economic freedom lower taxes, fewer regulations, protecting property rights Strong Incentives to Save Competitive Markets Political Stability Free Trade

39. Different PPC graphs can show how different variables affect an economy.

40. Different PPC graphs can show how different variables affect an economy (continued). • A natural disaster such as a hurricane has the effect of Case 1 on a local economy. Here, both capital (buildings and equipment) and labor are lost due to the calamity. Since the region’s production inputs are reduced, so too is its PPC, moving from A1 to A2. The region may recover over time, but the immediate effect of the disaster is to move the entire PPC inward. • Conversely, consider a local area with a booming economy; people are moving there in droves (providing labor), and businesses are investing in the area to take advantage of the increased number of consumers and potential employees. This would lead to a condition illustrated in Case 2, where the entire PPC shifts outward.

41. Different PPC graphs can show how different variables affect an economy (continued). • Now imagine a small town has just received a large economic development grant from the federal government. The amount of capital available to this economy has greatly increased while its labor pool remains unchanged, so a movement like that shown in Case 3 occurs. The new PPC, C2, shows how the investment will create an enhanced ability to produce capital goods. Lastly, increases in labor inputs (such as a higher number of college graduates) will lead to Case 4. Here, the boost to the labor force allows the PPC to shift from D1 to D2.

42. RATIONAL DECISION MAKING

43. Rational Decision Making Analyzing costs and benefits before making a decision MARGINAL thinking is key What is the cost/benefit of my NEXT decision Past decisions don’t matter this affects PRODUCERS AND CONSUMERS A rational decision is made when the marginal benefit is equal to or greater than the marginal cost

44. Costs and Benefits For producers, this is simply measured in dollars Marginal costs of the inputs vs. marginal revenue For consumers, it is trickier We measure benefits in terms of UTILITY How “useful” is the item or service We use “utils” as the measure for this

45. Another Example You purchased a ticket to see • 10 minutes into the movie, you realize it is going to be horrible. • DO YOU STAY OR LEAVE? • Write down your answer and reason WHY.

46. RDM Example (cont’d)

47. Another example A person opens a business making sandwiches. He’s purchased a store and all of the food products, now he wants to hire some people. He decides to hire two people to start with and pay them $50 a day. His costs/benefits sheet for a month looks like this:

48. 1 Month Rent/Food/Entrepreneurship = $750 Total Costs: 750+1500=2250 Total Output: 500 x 5 = 2500

49. 1 Month Rent, Food, Entrepreneurship - $750 Should he hire worker #3? Why? What about #4? Why?

50. What will be on the test? Scarcity definition examples Opportunity cost definition examples Production Possibilities Curve What do they show? interpret points (below, above, moving from one point to another) DRAW ONE!!!! Factors of production Define them Pick them from an example Productivity/Growth What causes it How do we measure it Rational Decision Making/Marginal Analysis What is marginal When do stop/start doing something