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Chapter one

Chapter one. What is Economics?. Economics. The study of how people seek to satisfy their needs and wants by making choices Three groups: Individuals Businesses Governments. Scarcity. Limited quantities of resources to meet unlimited wants. Shortage.

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Chapter one

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  1. Chapter one What is Economics?

  2. Economics • The study of how people seek to satisfy their needs and wants by making choices • Three groups: • Individuals • Businesses • Governments

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

  4. Shortage • Occurs when producers will not or cannot offer goods or services at the current prices

  5. Factors of Production • Resources that are used to make all goods and services • Land • →all natural resources in or on it • Labor • →effort made by a person • Capital • →physical capital: buildings, pencils, dishwashers • →human capital: knowledge and skills

  6. Entrepreneurs • Men and women who decide how to combine land, labor and capital to create new goods and services

  7. Opportunity Cost • The most desirable alternative given up as the result of a decision

  8. Trade - offs • Alternatives that either individuals, businesses or society give up when they take one course of action over another

  9. Making a Decision • Thinking at the margin • Deciding whether to do or use one additional unit of some resource • Deciding at the margin can only be used when alternatives can be divided into increments • Decision Making Grid is a visual way of examining opportunity cost.

  10. How We Choose What to Produce • Production Possibilities Curve: • A graph that shows alternative ways to use an economy’s resources  • Factors of production(land, labor and capital) are used to determine how much of a good or service can be produced • Production possibilities graphs can show us if an economy has grown or shrunk while showing the opportunity costs • Efficiency, Growth and Costsare factors that can be seen from production possibility graphs

  11. Production Possibility Curve

  12. Efficiency • Using resources in such a way as to maximize the production of goods and services • When this condition is present it is called the production possibilities frontier • Underutilization: Using fewer resources than the economy is capable of supplying

  13. Production Possibility Curve

  14. Growth • Condition that reflects a change in factors of production or when resources increase • When an economy grows the curve shifts to the right • Production capacity can also decrease causing the curve to shift left

  15. Cost • It is not necessarily money but the opportunity we give up when we choose one option over the other • Law of increasing costs: As production switches from one item to another more resources are needed to increase production of the second item. • **This is why production possibility frontiers usually curve**

  16. Resources and Technology • Twoareas that often change • Economists collect data to create production possibility curves based on which goods and services a country can produce based on current resources • Resourcesinclude land and natural resources, work force, human and physical capital • Technology is considered both human and physical capital

  17. Whatto produce?

  18. If the economy is not using all its resource it is operating inefficiently.

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