Unit I – Scarcity & Choices

1. Unit I – Scarcity & Choices

2. Goods and Services • Goods • Physical Objects • Objects that are tangible • Services • Actions or activities that one person performs for another

3. Factors of Production • Land • Natural resources that are used to make goods and services • Labor • The effort that people devote to a task for which they are paid • Capital • Any human-made resource that is used to create other goods and services

4. Physical vs. Human Capital • Physical Capital • Human-made objects used to create other goods and services • The term capital goods is a synonym for physical capital • Human Capital • The knowledge and skills a worker gains through education and experience

5. Entrepreneurial Traits

6. Replicative vs. InnovativeEntrepreneurs • Replicative Entrepreneurs • Business owners who produce products and service already in existence on the market • Innovative Entrepreneurs • Develop new, unique products or services, or develop innovative ways to improve the quality or usefulness of an existing product or services

7. Economizing Problem • “We have UNLIMITED WANTS but LIMITED RESOURCES.” • This causes the scarcity of everything.

8. Opportunity Cost • The most desirable alternative given up when making a decision.

9. Economic ReasoningCosts vs. Benefits • Whenever people decide whether the benefits of a particular action are likely to outweigh its costs, they engage in a form of benefit-cost analysis… • Benefit > Cost = Do It!!! • Benefit < Cost = Don’t Do It!!!

10. Incentives • Moral • One does or doesn’t do something b/c its is the right or wrong thing to do • Social • One does or doesn’t do something b/c they desire or don’t desire to conform to what others (society) do • Economic • One does or doesn’t do something b/c it helps or hurts them financially

11. Adam Smith • Father of Economics • Believer in Free Market Economy • “Laissez-Faire” • The phrase is French and literally means “let do,” though it broadly implies “let it be” or “leave it alone.”

12. Adam Smith – “Invisible Hand” • No government regulation is needed to promote the greater good of the economy. • The “Invisible Hand” of the market place will guide individuals to pursue their own self-interests which in turn will also serve the greater good of the economy.

13. PPC Curve • 4 main concepts a PPC Curve illustrates • Scarcity (Trade-offs) • Law of Increasing Opportunity Costs • A perfectly efficient economy produces on the curve; instead of inside it • Economic growth means pushing the frontier outward

14. PPC curve Consumer Goods Capital Goods

15. Operating Efficiently A B C Consumer Goods D Capital Goods

16. Underutilizing Resources Consumer Goods X Capital Goods

17. Unsustainable in Short Run U Consumer Goods Capital Goods

18. Reasons why a PPC curve may shift • Change in Quantity of Resources Available • Increase in Quantity; Curve shifts to the Right • Change in Quality of Resources Available • Increase in Quality; Curve shifts to the Right • Change in Technology • Increase in Technology; Curve shifts to the Right