Chapter 1 What is Economics? Society is structured around the
idea that everybody has needs and wants. Goods and services fulfill
them. Needs essential for survival i.e. food, shelter Wants we
desire, but not necessary i.e. IPhone, 60 HDTV Some items can be
both a need and want i.e. Cowfish Goods tangible/physical objects
i.e. food, clothing, electronics Services actions/activities that
one person performs for another i.e. haircut, tax return, manicure,
oil change Some things can provide both a good and service i.e.
restaurant serves you food (good), but also cooked (service) the
food
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What is Economics? Peoples needs and wants are unlimited
Scarcity fact that limited amounts of goods and services are
available to meet unlimited wants This is the Basic Economic
Problem Economics the study of how people seek to satisfy their
needs and wants by making choices Scarcity vs. Shortage Scarcity
always exists i.e. gold Shortages are caused by suppliers not
making more of a good/service i.e. IPad
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What is Economics? To satisfy needs and wants resources must be
turned into goods/services Entrepreneurs people who decide how to
combine resources to create new goods and services Factors of
Production the resources individuals use to make all goods/services
Land all natural resources i.e. oil, timber, water Labor
people/workers i.e. doctor, farmer, assembly line worker Capital -
resources used to produce other goods and services Physical Capital
buildings, equipment, tools, computers, etc. Human Capital
knowledge and skills a worker gains through education/experience
Benefits of Capital extra time, more knowledge, more
productivity
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Chapter 1.1 Questions What is the difference between goods and
services? What does an entrepreneur do? Identify the factor of
production represented by each of the following: A. fishing waters
B. an office building C. clerks in a store D. a tractor E. a
student in a cooking school Think of a good or service you consumed
today. List at least five factors of production used to produce
that good/service.
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Opportunity Cost - Every time we choose to do something we give
up the opportunity to do something else. Determine Opportunity Cost
The most desirable alternative given up as the result of a decision
Usually the difference between cost of what you chose and cost of
what you didnt choose Trade-off giving up one benefit in order to
gain another, greater benefit. Individuals Businesses
Government
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Thinking at the Margin when you decide how much more or less to
do Ex. Sleeping in: get more sleep, but might miss the bus
Cost/Benefit Analysis comparing opportunity costs and the benefits,
what will be sacrificed vs. what will be gained Marginal Cost the
extra cost of adding one unit ex. One more hour of sleep Marginal
Benefit the extra benefit of adding the same unit As long as the
marginal benefits exceed the marginal cost it pays to add more
units.
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Decision making at the Margin
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Chapter 1.2 Questions Why do all economic decisions involve
trade-offs? Why do many economic decisions involve thinking at the
margin? Identify a possible opportunity cost for each of the
following choices: A. studying for a test on a Saturday afternoon
B. using all the money you received for your birthday to pay for
downloading songs C. spending four hours playing a video game on a
Tuesday night D. having four slices of pizza for lunch
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Production Possibilities Curve How do you decide what and how
much to produce? Production Possibilities Curve a graph that shows
alternative ways to use an economys productive resources.
Production Possibilities Frontier a data line showing the possible
combinations of production of certain items
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Production Possibilities Curve
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Efficiency, Growth, and Cost A production possibilities
frontier shows an economy working at its most efficient level
Efficiency the use of resources in such a way as to maximize the
output of goods/services Underutilization the use of fewer
resources than the economy is capable of using Growth/increases in
factors of production and shift the production possibilities
frontier There will always be opportunity costs when determining
what and how much to produce Some resources are better suited to
produce certain goods Technology and Education increase
efficiency
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Efficiency, Growth & Cost
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Chapter 1.3 Questions What is a production possibilities curve?
What do economists mean by growth? What factors can produce
economic growth? Explain how each of the following circumstances is
likely to affect a nations production possibilities frontier: A.
The opening of a new college of engineering B. an earthquake in the
nations chief farming region C. a new type of chemical fertilizer
D. a shortage of oil