Economics: Unit I

1. Economics:Unit I Productivity & Making Choices

2. Questions for focus[standards SSEF1 & 2] • What does resource allocation mean? • What is a trade-off? • What is opportunity cost? • How do people make rational decisions when confronted with scarcity? • What is a cost-benefit analysis? (rational decision benefits>/= costs) • What is a production possibilities curve?

3. Resource allocation • How people or governments determine who gets what • US $$$, China government decides • Traditional systems (Native tribes): trade (barter)

4. Trade-off • Choices people must make when faced with scarcity

5. Opportunity cost • The cost of the next-best alternative use of money, time or resources $1500 to spend Vacation or car payments/insurance/upkeep?

6. How do you make rational decisions when confronted with scarce resources? • How do you decide how you spend your money? • More satisfaction? Highest/best return? How would you spend $1000?

7. Cost-benefit analysis • Comparing the cost of an action to the benefits Jeans vs. soccer cleats • You have $300 to spend. You’re a soccer player and you need new cleats (your old cleats are worn out). You’re also a student, and you need new jeans for school (for the same reasons). • What do you do? • Reasons to buy the cleats: • Reasons to buy the jeans: • How can you get both? Is there some kind of compromise?

8. Rational decision making • A rational decision is when the benefits outweigh or are equal to the costs. (This can be subjective!) • Classic example: “guns” vs. “butter” • Which is more important? Security/protection, or education/health care/roads/consumer products? • Cost benefit analysis: can these issues be analyzed in terms of $?

9. Production possibilities curve