Chp 2 economic decision making
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Chp. 2: Economic Decision Making. p. 012. In the course of reading this chapter and participating in the classroom activity, students will explain how unlimited wants and scarce resources influence decision making.

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Chp. 2: Economic Decision Making

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Chp 2 economic decision making

Chp. 2: Economic Decision Making


Objectives

p. 012

In the course of reading this chapter and participating in the classroom activity, students will

explain how unlimited wants and scarce resources influence decision making.

distinguish the goods and services, factors of production, and tradeoffs visible in common places and everyday situations.

evaluate tradeoffs in and determine opportunity costs of various decisions.

analyze and interpret production possibilities frontiers.

apply the economic way of thinking to their own lives.

Objectives


Preview

p. 002

  • It is Friday night. Your only chunk of free time all weekend is tonight from 6:00 to 11:00. Before deciding how you will spend this time, consider these factors:

    • You have $50 to spend.

    • You have an economics test on Monday.

    • This is the last football game of the season.

    • It is your mother’s birthday.

    • Someone you like has asked you out on a date.

    • Your favorite band is in town tonight.

  • Fill in a table like the one below showing how you plan to spend your time. Create your own activities or choose from the list of possible activities. If you choose an activity from the list, use the given time and price.

  • Possible Activities

    • Football game: 3 hours, $5

    • Dinner: 2 hours, $20 per person

    • Movie: 2 hours, $10 per person

    • Concert: 4 hours, $40

    • Study for test: variable time, $0

    • Hang out at friend’s house: variable time, $0

    • Work at job: variable time, earn $10 per hour

    • Family time: variable time, $0

Preview


Preview1

p. 002-3

Preview

What decisions did you have to make in this exercise?

What constraints did you face when making these decisions?

For each decision you made about how to spend your time, what did you have to give up?


Why is what we want scarce

p. 003

Why can’t we have everything we want? We can't get everything we want because there is a limited amount of resources to fulfill our wants. All goods (physical objects) and services (activities provided by others) are scarce because the resources needed to produce them are scarce.

Why is What We Want Scarce?


Why is what we want scarce1

p. 003

What is the difference between a shortage and scarcity? A shortage is a temporary condition that occurs when there is less of a good or service available than people want at the current price.

Why is What We Want Scarce?


Why is what we want scarce2

p. 003

What are some of the causes of shortages? Wars, prices, fads, media craze, natural disasters, changes in productivity

Why is What We Want Scarce?


Shortage or scarcity

p. 003

You buy a Babe Ruth rookie baseball card for $500,000.

You have to take the bus to school because your mom and dad have the cars

You have to buy a Kiwi Strawberry smoothie on Friday instead of Peach

You pay over $500 for an original Nintendo gaming system.

Shortage or Scarcity?


More shortage v scarcity

p. 003

5 Goods You Wish You HadWhat is keeping you from these goods?

More Shortage v. Scarcity


How do we satisfy economic wants

p. 004

What are factors of production? The productive resources that go into producing goods and services are called factors of production. These inputs make up the production equation:

land + labor + capital = goods and services

How Do We Satisfy Economic Wants?


How do we satisfy economic wants1

p. 004

  • Land Resources “Gifts of Nature”

    • Perpetual – sources that won’t run out EX – sunlight, wind

    • Renewable – sources that can be replaced as they are used EX - forests, fish,

    • Nonrenewable – once these sources are used, they are gone forever EX – fossil fuels, natural gas, coal

How Do We Satisfy Economic Wants?


How do we satisfy economic wants2

p. 004

  • Labor Resources

    • The time and effort people devote to producing goods (could be physical(planting trees, building houses) or mental (programming games, writing legal briefs)

How Do We Satisfy Economic Wants?


How do we satisfy economic wants3

p. 004

  • Capital Resources

    • physical capital (also known as real capital) – the manmade goods, such as tools, which are used to produce other goods (tools, machines, buildings, screwdrivers, supercomputers, factories, roads, airports, etc.)

    • Human capital – the skills and knowledge a person has acquired through experience and/or education (take away everything from a person and just leave them with)

How Do We Satisfy Economic Wants?


How do we satisfy economic wants4

p. 004

Entrepreneurscombine land, labor, and capital to produce goods and services. They often supply vision, take risks, and provide the drive needed to turn ideas into realities.

Entrepreneurs + (land + labor + capital) = goods and services

How Do We Satisfy Economic Wants?


Factors of production

p. 004

Factors of Production


What do we give up when we make a choice

Can create a decision matrix to help you decide

p. 005

  • People often have to make tough decisions to maximize the utility of their decisions

    • Utility – the satisfaction or gain made from a decision

    • Usually difficult because we don’t have enough information and cannot predict the future

What Do We Give Up When We Make a Choice?


What do we give up when we make a choice1

Can create a decision matrix to help you decide

p. 005

Opportunity Cost – what it cost you to give up the next best option Whether you have 2 alternatives or 200, the opportunity cost is the next best option, this is really a personal thing

What Do We Give Up When We Make a Choice?

Go back to the Preview on page 2. Write in the opportunity cost for each activity you picked.


What do we give up when we make a choice2

Can create a decision matrix to help you decide

p. 005

Marginal Utility – the extra pleasure/satisfaction you get with one more of something

Negative Utility – when one more of something actually does not bring you happiness

Law of diminishing marginal utility – the more you do/have of something, the marginal utility decreases until it becomes a negative

What Do We Give Up When We Make a Choice?


How can we measure what we gain and lose when making choices

p. 005

A production possibilities frontier (PPF) is a graph that shows how an economy might use its resources to produce two goods.

How Can We Measure What We Gain and Lose When Making Choices?


How can we measure what we gain and lose when making choices1

p. 005

A PPF is used to calculate the opportunity cost of moving production from one point to another.

How Can We Measure What We Gain and Lose When Making Choices?


How can we measure what we gain and lose when making choices2

p. 005

Every point on a PPF represents an efficient use of resources. The area under the curve represents an attainable but inefficient use of resources. The area above the curve represents an unattainable goal based off current resources.

How Can We Measure What We Gain and Lose When Making Choices?


How can we measure what we gain and lose when making choices3

p. 005

Increases in productivity, a measure of the output of a system, can shift the PPF outward.

How Can We Measure What We Gain and Lose When Making Choices?


Ppf curve practice

p. 006

PPF Curve Practice


Ppf curve practice1

p. 006

A

B

PPF Curve Practice

C

D

E


Ppf curve practice2

p. 006

What is the opportunity cost of increasing wheat production by 200 pounds by moving production from Point B to Point C?

What is the opportunity cost of increasing wheat production by 200 points by moving production from Point C to Point D?

How would the line change if they found a way to produce more wheat? Draw it on the graph with a different color.

How would new computer technology affect the line? Draw it on the graph with a different color.

PPF Curve Practice


Ppf curve practice3

p. 006

How would the line change if they found a way to produce more wheat? Draw it on the graph with a different color.

How would new computer technology affect the line? Draw it on the graph with a different color.

PPF Curve Practice


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