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What is Economics?. Chapter 1. Economics:. The study of how people seek to satisfy their needs and wants by making choices about how to use scarce resources. Needs: things NECESSARY for survival Wants: things we desire but are NOT ESSENTIAL to survival. Needs vs. Wants. Scarcity.

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economics
Economics:
  • The study of how people seek to satisfy their needs and wants by making choices about how to use scarce resources
needs vs wants
Needs: things NECESSARY for survival

Wants: things we desire but are NOT ESSENTIAL to survival

Needs vs. Wants
scarcity
Scarcity
  • Limited quantities of resources to meet unlimited wants
shortage
Shortage
  • A situation in which a good or service is unavailable temporarily
factors of production
Factors of Production
  • Land
  • Labor
  • Capital
    • Human
    • Physical

Remember these!

You will hear them a lot this semester!

slide7
Land

Natural resources (land, coal, water, forests, etc.)

labor
Labor

The effort people devote to a task for which they are paid

capital
Capital
  • Physical: Human made objects used to create other

goods and services

  • Human: The skills and knowledge gained by a worker through education and experience
entrepreneurs
Entrepreneurs
  • Ambitious leaders who combine land, labor, and capital to create and market new goods and services.
slide11

Factors of Production Model

LAND - cotton

LABOR -seamstress

ENTREPRENEUR –designer, business owner

GOOD – t-shirt

CAPITAL – thread, sewing machine.

opportunity cost
Opportunity Cost

There is no such thing

as a free lunch!

spring break which would you choose
Spring Break…Which would you choose?

Hawaii New York

Las Vegas Cancun

ParisTokyo

VailTahiti

trade offs options when you make a choice
Individuals

work or free time

study or sleep

Business

Goods or Services

Produce or Sell

Trade-offs…options when you make a choice.
production possibilities curves
Production Possibilities Curves
  • Graphs that show alternative ways to use an economy’s resources
slide19

Al\'s Coffee Shop!

Coffee

A

50

B

40

30

C

20

10

D

0

25

50

70

75

Tea

efficiency
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.
slide21

Coffee

Productions possibilities frontier

50

Any production

along

this line is

EFFICIENT

75

Tea

efficiency1
Efficiency
  • Efficiency also means that in order to produce more of one good you must give up producing some of the other good.
  • This is because the line represents the limits that scarce resources place on our production possibilities.
slide23

Coffee

Tea

Efficiency

Coffee

50

40

20

0

0

50

70

75

A

50

B

40

30

C

20

10

D

0

25

50

70

75

Tea

underutilization
Underutilization
  • Any point inside the line indicates an underutilization of resources.
  • This economy is not using all of the resources that are available.
  • This economy is not producing all the goods and services it could be producing.
slide25

Al\'s Coffee Shop!

Coffee

50

Any production

in this

space is

inefficient…you

have the supplies

but aren’t making

the coffee or tea

75

Tea

growth
Growth
  • Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.”
slide27

Al\'s Coffee Shop!

Coffee

50

Al buys more

equipment

and now he can

make even more

coffee or tea!

75

Tea

law of increasing costs
Law of Increasing Costs
  • As we shift resources from making one good to another, the cost of producing the second item increases.
  • In other words, we have to give up more and more of the first item for each additional unit of the second item.
  • This is because some resources are better suited for one purpose over another.
slide29

Law of Increasing Costs

Coffee

Tea

Coffee

50

40

20

0

0

50

70

75

A

50

B

40

30

C

20

10

D

0

25

50

70

75

Tea

slide50

Decide whether to work 2, 4, or 6 hours at an after-school job by comparing the opportunity cost and benefit of each alternative. Cost Benefit2 hours4 hours 6 hours

slide51

Decide whether to finish the semester and graduate by comparing the opportunity cost and benefit for each alternative Cost BenefitGraduate NowGraduate laterGet a GEDDrop Out

slide55

Describe a specific event that would make each of the following happen to a production possibilities curve:

slide56

Still capable of

same output but

not producing

total possible

  • A point moves down and to the left
  • The frontier shifts to the right

Capable of producing

more of every

combination of

products

slide57

Describe three services that the government provides to its citizens then identify some of the opportunity costs of providing those services.

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