What did you do to earn some money this summer?

Let’s talk about it….

Did you make as much as you wanted to?

What did you do to earn some money this summer?

Let’s talk about it….

Did you make as much as you wanted to? NEEDED

When you hear the word ECONOMICS, what are the first ten words that

you think of?

Focus Activity

What is Economics?

Chapter 1

Economics:“The study of how people seek to satisfy their needs and wants by making choices.”

• People cannot have everything they NEED and WANT.

Needs vs. WantsNeeds vs. Wants• Needs: things NECESSARY

for survival

• Wants: things we desire but are NOT ESSENTIAL to survival

Needs vs. WantsNeeds vs. Wants

•Give me some examples of your NEEDS and WANTS I need air, food and

shelter to survive.

Decision Time…Decision Time…• People in the business world have to decide how many people to employ and how much to produce.

The things people do…The things people do…

• Because people act individually, in groups (such as businesses), and through governments, economists study each of these groups. And this includes your specific age group! How many groups to you belong to?

People make choices because of Scarcity

• Limited quantities of resources to meet unlimited wants

Shortage• A situation in which a good or

service is unavailable

ScarcityScarcityIS NOT THE SAME AS

ShortageShortageEconomics is about solving

the problem of scarcity

ShortagesShortagesoccur when producers occur when producers will not will not or or cannotcannot offer offer

goods or services at the goods or services at the current prices.current prices.

Shortages can be Shortages can be temporary or long-term.temporary or long-term.

What impact will the drought in the

Midwest have on our economy?

Let’s talk about it….

What have you seen so far?

People make choices because of Scarcity

• Limited quantities of resources to meet unlimited wants

Shortage• A situation in which a good or

service is unavailable

Factors of Production

What are they?

Factors of Production• Land All natural resources that

are used to produce goods and services.

• Labor Any effort a person devotes to a task for which that person is paid.

• Capital Any human-made resource that is used to create other goods and services.

Factors of Popcorn Production

Quick Assessment

1. What is the difference between a shortage and scarcity?

(a) A shortage can be temporary or long-term, but scarcity always exists.

(b) A shortage results from rising prices; a scarcity results from falling prices.

(c) A shortage is a lack of all goods and services; a scarcity concerns a single item.

(d) There is no real difference between a shortage and a scarcity.

Quick Assessment

1. What is the difference between a shortage and scarcity?

(a) A shortage can be temporary or long-term, but scarcity always exists.

(b) A shortage results from rising prices; a scarcity results from falling prices.

(c) A shortage is a lack of all goods and services; a scarcity concerns a single item.

(d) There is no real difference between a shortage and a scarcity.

Quick Assessment

1. What is the difference between a shortage and scarcity?

(a) A shortage can be temporary or long-term, but scarcity always exists.

(b) A shortage results from rising prices; a scarcity results from falling prices.

(c) A shortage is a lack of all goods and services; a scarcity concerns a single item.

(d) There is no real difference between a shortage and a scarcity.

Quick Assessment

2. Which of the following is an example of using physical capital to save time and money?

(a) hiring more workers to do a job

(b) building extra space in a factory to simplify production

(c) switching from oil to coal to make production cheaper

(d) lowering workers’ wages to increase profits

Opportunity Costs

• Does every decision you make involve trade-offs?

• How can a decision-making grid help you identify the opportunity cost of a decision?

• How will thinking at the margin affect decisions you make?

Trade-offs and Opportunity Cost

• Trade-offs are all the alternatives that we give up whenever we choose one course of action over others.

• The most desirable alternative given up as a result of a decision is known as opportunity cost.

All individuals and groups of people make decisions that involve trade-offs.

The Decision-

Making GridEconomists encourage us to

consider the benefits and costs of our decisions.

The Decision-Making GridEconomists encourage us to consider the

benefits and costs of our decisions.

Benefits Enjoy more sleep

Have more energy during the day

Better grade on test

Teacher and parental approval

Personal satisfaction

Decision Sleep late Wake up early to study for test

Opportunity cost Extra study time Extra sleep time

Benefits forgone Better grade on test

Teacher and parental approval

Personal satisfaction

Enjoy more sleep

Have more energy during the day

Sleep late Wake up early to study

Alternatives

Zach’s Decision-making Grid

Thinking at the MarginWhen you decide how much more or less to do, you are thinking at the margin.

Options

1st hour of extra study time

2nd hour of extra study time

3rd hour of extra study time

Benefit

Grade of C on test

Grade of B on test

Grade of B+ on test

Opportunity Cost

1 hour of sleep

2 hours ofsleep

3 hours of sleep

Now it’s your turn…

Give me some examples of

“Thinking at the Margin”

Thinkabout it….

What does the expression “Guns or

Butter” have to do with trade-offs?

Quick Assessment1. Opportunity cost is

(a) any alternative we sacrifice when we make a decision.

(b) all of the alternatives we sacrifice when we make a decision.

(c) the most desirable alternative given up as a result of a decision.

(d) the least desirable alternative given up as a result of a decision.

Quick Assessment1. Opportunity cost is

(a) any alternative we sacrifice when we make a decision.

(b) all of the alternatives we sacrifice when we make a decision.

(c) the most desirable alternative given up as a result of a decision.

(d) the least desirable alternative given up as a result of a decision.

Quick Assessment2. Economists use the phrase “guns or butter” to describe the fact that

(a) a person can spend extra money either on sports equipment or food.

(b) a person must decide whether to manufacture guns or butter.

(c) a nation must decide whether to produce more or less military or consumer goods.

(d) a government can buy unlimited military and civilian goods if it is rich enough.

Quick Assessment2. Economists use the phrase “guns or butter” to describe the fact that

(a) a person can spend extra money either on sports equipment or food.

(b) a person must decide whether to manufacture guns or butter.

(c) a nation must decide whether to produce more or less military or consumer goods.

(d) a government can buy unlimited military and civilian goods if it is rich enough.

Quick Assessment2. Economists use the phrase “guns or butter” to describe the fact that

(a) a person can spend extra money either on sports equipment or food.

(b) a person must decide whether to manufacture guns or butter.

(c) a nation must decide whether to produce more or less military or consumer goods.

(d) a government can buy unlimited military and civilian goods if it is rich enough.

Entrepreneurs• Ambitious leaders who

combine land, labor, and capital to create and market new goods and services.

It’s all about Greed!

• “The problem of social organization is how to set up an arrangement under which greed will do the least harm, capitalism is that kind of a system.” Milton Friedman

As we move along, here is Part 1 of “Greed” by John Stossel

As we move along, here is Part 2 of “Greed” by John Stossel

LeBron LeBron James James

Lisa Lisa LeslieLeslie

LeBron LeBron James James $53 Million

Lisa Lisa LeslieLeslie

$6 Million

LeBron LeBron James James $53 Million

Lisa LeslieLisa Leslie

$6 Million

IT’S ALL ABOUT IT’S ALL ABOUT TRADE-OFFSTRADE-OFFS

• Individuals: work or free time

• Students: study or sleep

• Farmers: grow wheat or corn

• Merchants: sell shoes or hats

OPPORTUNITY COSTOPPORTUNITY COST• When asked how much something

costs, people usually answer by giving its price, or money cost.

• Economists usually measure cost differently, using what they call opportunity cost, defined as the value of the next best alternative opportunity that is given up in order to do something.

OPPORTUNITY COSTOPPORTUNITY COSTHere's how to calculate it. When considering a choice, ask yourself three questions:

1. What alternative opportunities are there?

2. Which is the best of these alternative opportunities?3. What would I gain if I selected my best alternative opportunity instead of the choice I'm considering?

The answer to the third question is the opportunity cost of the choice.

IT’S TIME TO APPLY SOME CONCEPTS…

OPPORTUNITY OPPORTUNITY COSTCOST

Alternatives

Go to College Take a year off

Benefits ? ?

DecisionGo to College

right awayTake a year off

after grad.

Opportunity Cost ? ?

Benefits forgone ? ?

DECISION MAKING GRID

THINKING AT THE MARGINOptions Benefit

Opportunity Cost

1 summer off ? ?

1 semester off ? ?

1 year off ? ?

PRODUCTION POSSIBILITIES CURVES

• Graphs that show alternative ways to use an economy’s resources

The output mix that produces only Good A and zero Good B

The output mix that produces only Good B and zero Good A

PRODUCTION POSSIBILITIES CURVES

Efficiency• Efficiency means using

resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently.

PRODUCTION POSSIBILITIES CURVE

Watermelons Shoesmillions of tons millions of pairs

A 0 15B 8 14C 14 12D 18 9E 20 5F 21 0

Poss

The Four Factors of Production

You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk.

The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.

Classify the Factors of Production in the following scenario:

The Four Factors of ProductionClassify the Factors of Production in the following scenario:

You decide to order a pizza to satisfy your wants. First, you picked up the telephone and gave your order to the owner that entered it into her computer. This information came up on the chief baker’s monitor in the kitchen and he assigned it to one of his cooks. The cook was busy mixing dough out of salt, flour, eggs, and milk.

The cook finished mixing dough, washed his hands in the sink, and prepared your pizza using tomato sauce, cheese, and sausage. He then placed the pizza in the oven. Within 10 minutes the pizza was cooked and placed in a cardboard box. The delivery person then grabbed your pizza, jumped in the company car, and delivered it to your door.