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What is Economics?

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

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What is Economics?

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  1. What is Economics? Chapter 1

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

  3. Needs: things NECESSARY for survival Wants: things we desire but are NOT ESSENTIAL to survival Needs vs. Wants

  4. Scarcity • Limited quantities of resources to meet unlimited wants

  5. Shortage • A situation in which a good or service is unavailable

  6. Factors of Production • Land • Labor • Capital • Human • Physical Remember these! You will hear them a lot this semester!

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

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

  9. 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

  10. Entrepreneurs • Ambitious leaders who combine land, labor, and capital to create and market new goods and services.

  11. Opportunity Cost There is no such thing as a free lunch!

  12. Spring Break…Which would you choose? HawaiiNew York Las Vegas Cancun ParisTokyo VailTahiti

  13. Individuals work or free time study or sleep Business Goods or Services Produce or Sell Trade-offs…options when you make a choice.

  14. Decision Making Grid

  15. Thinking at the Margin

  16. Production Possibilities Curves • Graphs that show alternative ways to use an economy’s resources

  17. Al's Coffee Shop! 50 Coffee 50 Tea

  18. Al's Coffee Shop! 50 Coffee Any production in this space is inefficient…you have the supplies but aren’t making the coffee or tea 50 Tea

  19. 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.

  20. Al's Coffee Shop! 50 Any production along this line is EFFICIENT Coffee 50 Tea

  21. 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.”

  22. Al's Coffee Shop! 50 Al gets a loan from The bank and now He can make even More coffee or tea! Coffee 50 Tea

  23. Chapter 1Things to think about…

  24. What is the difference between a good and a service?

  25. How is scarcity different from shortages?

  26. What does the term “guns or butter” mean?

  27. What does it mean to “think at the margin”?

  28. What are the opportunity costs involved in:

  29. Eating pizza

  30. Going to see a movie on a Tuesday

  31. Going to see a movie on a Saturday

  32. Watching TV

  33. Studying for a test

  34. Finishing High School

  35. Getting Married

  36. Having a Kid

  37. How is underutilization depicted on a production possibilities frontier?

  38. How does a production possibilities curve illustrate opportunity cost?

  39. Decide whether to work 2, 4, or 6 hours at an after-school job by comparing the opportunity cost and benefit of each alternative. Benefit Cost2 hours4 hours 6 hours

  40. Decide whether to finish the semester and graduate by comparing the opportunity cost and benefit for each alternative Benefit CostGraduate NowGraduate laterGet a GEDDrop Out

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