Chapter 1 What is Economics?

1. Chapter 1What is Economics? Section 2 Trade-Offs and Opportunity Costs

2. Trade-Offs and Opportunity Costs Isn’t this the meaning and scope of economics???

3. Trade-Offs and Opportunity Costs Opportunity Cost Because resources are scarce, people can’t have everything they want. Therefore, they face trade-offs (alternative choices about spending their time or income) Each trade-off had advantages and disadvantages How do you decide? A decision making grid! Economists view cost as an opportunity cost (Choosing the next best thing or alternative when considering the use of money, time, or resources). http://www.youtube.com/watch?v=q1n4yiPPKSw Trade-Offs Among Alternatives

4. Trade-Offs and Opportunity Costs • To determine what will be gained or lost in your personal life, a business, or in a economy, economist implement a production possibilities frontier (a diagram of goods and services , two at a time, that an economy can produce at full-strength). • Look at pg. 16 in your books at The Production Possibilities Frontier (PPF). • Some things to think about: • On the graph labeled “A” what could make the quantity of guns rise and the butter to stay the same? • On the graph labeled “B”, what does it mean when the caption reads, “When all resources are not fully used, a country cannot reach its potential.”? • What are some hypothetical possibilities on why the production of butter went down 200 units, but the gun manufacturer did not suffer any lack in production. • How does our nation’s drop-out rate affect the PPF?

5. Production Possibilities Frontier Each Unit x 10,000 60 50 40 Guns - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30 20 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10 0 0 10 30 50 40 20 60 70 Butter