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Economics

Explore the concepts of scarcity, opportunity cost, and resources in economics, and learn how individuals, businesses, and governments make economic decisions. Discover the factors of production, the importance of productivity, and how tradeoffs are determined through the production possibilities frontier.

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Economics

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  1. Economics Resources, Opportunity Cost, and the PPF

  2. Introduction • Today we will be talking about how scarcity requires individuals, businesses, and governments to make economic decisions that involve tradeoffs. • Rolling Stones • Cant always get what you want

  3. Vocab for this lesson • Goods • Services • Factors of Production • Entrepreneurship • Capital • Productivity • Opportunity Cost • Production Possibilities Frontier

  4. What do we remember? • Definition of economics • About resources? • Scarcity is everywhere • Goods—physical objects produced for sale • Services—Activities done for us by others • Scarce because of the resources needed • Land • Labor • Capital

  5. Scarcity is forever, Shortages Temporary • Shortage—lack of something that is desired • Less of a good or service available than people want at the current price • Causes • Trends in fashion • Musical acts • Wars and natural disasters (Katrina)

  6. How are goods produced? • Economists look at inputs and outputs • Inputs---Factors of production • Go into the process (land, labor, capital) • Outputs • Goods and services produced • Some look at entrepreneurship • Willingness to take risks involved in starting a business

  7. Land Resources • More than just physical property • Really is “gifts of nature” • Air • Soil • Water • Solar energy • Electromagnetic Spectrum • Perpetual, Renewable, Non Renewable

  8. Labor Resources • Labor • The time and effort people devote to producing goods and services in exchange for wages • Physical and mental • Human capital • Knowledge and skill that people gain • Impossible to overstate importance • Nigeria vs. Japan

  9. Capital Resources • Tools, machines, and buildings used in the production of other goods and services • Money is financial capital • Pizza delivery car is capital good • Since Industrial Revolution capital has been replacing labor • Good or bad?

  10. Put it all together… • Three resource types are scarce • Use them efficiently, increase productivity • Productivity = output/input (any individual input) • Example: Lumber mill productivity • Ratio of board feet produced per hour • How do you raise productivity?

  11. Making choices • What do we give up when making a choice? • Economists assume people seek to make themselves better off • Maximize the utility of their decisions • Utility is satisfaction or pleasure one gains from consuming a product or service • Example: Which college to attend • Never easy---never have total information

  12. Opportunity Cost • The best thing we give up to get what we want • Example: Mick Jagger • Musician, or… • College degree • Thinking at the margin • Seldom all or nothing • Law of diminishing marginal utility

  13. How to measure what we gain and lose in choices? • The Production Possibilities Frontier • Economic model • Line graph • Shows how economy can use its resources to produce two goods • Helps identify tradeoffs and opportunity costs • Shows economic efficiency • Using resources to produce maximum

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