Ch. 2- An Economic Way of Thinking

1. Ch. 2- An Economic Way of Thinking J.A. SACCO

2. Economic Decisions As in all things, economics is a series of decisions. • Who makes these decisions? Consumers? Producers? • Are these decisions based on needs/wants? • What do producers create? Goods? Services? Greatest concern in making economic decisions are the resources used when making these decisions.

3. Economic Resources (Factors of Production) • Inputs that are used to produce things that people want.

4. Factors of Production Natural Resources (Land) • All the “gifts of nature” that we use to produce goods and services. All the things we call natural resources. • Land includes minerals, water, air, wild plants, animals,birds, and fish as well as farmland and forests.

5. Factors of Production Human Resources Labor • The work time and work effort that people devote to producing goods and services. • The quality of labor depends on how skilled people are—what economists call human capital. • Human Experience • The knowledge and skill that people obtain from education, on-the-job training, and work experience.

6. Factors of Production Capital Resources • Physical- Tools, instruments, machines, buildings, and other items that have been produced in the past and that businesses now use to produce goods and services- CAPITAL GOODS • Financial- Money/assets • Technology/Innovation

7. Factors of Production Entrepreneurship • The human resource that organizes labor, land, and capital. • Entrepreneurscome up with new ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions.

8. The Dilemma in Economics • What’s da problem??? Scarcity

9. Scarcity • A situation in which available resources are unable to produce enough of the things that people desire to satisfy all wants. Scarcity exists because human wants always exceed what can be produced with the limited resources and time available. • A situation in which a resource has more than one use. The key is to use resources efficiently!!!

10. Scarcity Choices What? How? For Whom to Produce Scarcity, Choice, and the Three Economic Questions Limited Resources & Unlimited Wants

11. Scarcity, Choice and Opportunity Cost • Choice- Because of scarcity a person must choose between things. Every choice made means that some other choice had to be sacrificed. • Opportunity Cost- The next-best or highest valued alternative that is given up in order to have the choice that was made. In economics cost is always a forgone opportunity. • World of Trade-Offs- Whenever resources are used for any activity ,the user is trading off the opportunity to use those resources for other things.

12. Scarcity, Choice, and Opportunity Cost • Questions • What is the opportunity cost of attending this economics class? • What is the opportunity cost of attending a Rolling Stones concert? • What is the opportunity cost of increasing research for an AIDS vaccine?

13. ProductionPossibilities Curve (PPC) A 140 . B 120 J C 100 . D Economy Cars 80 I E 60 F 40 G 20 H 20 40 120 60 100 140 80 Luxury Cars