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chapter 1 section 1
Chapter 1 Section 1
  • During the holiday season of 1996, a children's toy appeared on Good Morning America. The toy, produced by Mattel, had sat on the shelves with very little sales until it appeared on the show. After the toys appearance, its popularity improved and it became the most sought after product of the holiday season. Unfortunately, Mattel did not anticipate the doll’s popularity, only producing 400,000 units, and were not able provide the product in a timely manner at the store level (over 1,000,000 were in demand).
  • List the problem that each of the following faced:
  • The Consumers – You and I
  • The Producer – Mattel
  • The Stores – Babies R Us
objectives
Objectives

Determine difference between want and need

Define scarcity and economics

Understand the concept of opportunity cost

Determine the difference between the different types of tradeoffs

Identify what is meant by “No such thing as free lunch”

slide3
Unit 1: Fundamental Economic ConceptsCHAPTER 1 - What Is Economics? Section 1 – Scarcity and the Factors of Production
  • Scarcity - fundamental problem facing all people; unlimited wants and limited resources to satisfy those wants
  • No one can have an endless supply of everything
    • e.g. - money, time, rest, etc.
    • Scarcity applies to everyone; no one can have an endless supply of everything
application question
Application Question
  • List three things that you feel are scarce in your life, what has caused them to become scarce?
what is economics
What is Economics?
  • Economics – the study of choices; how individuals and groups seek to satisfy their wants and needs in light of scarcity
needs vs wants
Needs vs. Wants
  • Need – a basic requirement for survival
    • e.g. – food, clothing, education, etc…
  • Want – not a basic requirement for survival; a means of expressing a need
    • e.g. – cheeseburger, Abercrombie and Fitch, University of Georgia, etc…

OR

good physical tangible touchable product

Goods

Good – physical, tangible(touchable) product
  • i.e. – Automobiles, Video Games, Cell Phones, CD’s, Tickle Me Elmo, etc…
service a non tangible action or activity that is performed for someone else

Services

Service – a non-tangible action or activity that is performed for someone else
  • i.e – Financial Advisor, Stock Broker, Movies, Dentist, Teachers, etc..
slide9

Factors of Production

  • b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).
  • Factors of Production - resources required to produce goods and services
  • Land
  • Labor
  • Capital
  • Entrepreneurship
slide12

Capital

  • Capital – resource that is used to produce additional goods and services
  • Physical Capital – also known as Capital Goods - Human made objects used to create other goods and services
  • Human Capital – collective amount of skills, abilities, and specialized growth of people.
  • Financial Capital - money used by entrepreneurs and businesses to buy what they need to make their products or provide their services
slide13

Entrepreneurs

Entrepreneurs – ambitious leaders who organize the factors of production to create new goods and services
slide14

Essential Question 1 + 2

Why is scarcity a permanent condition?

What are the four factors of production and an example of each?

  • Scarcity reflects the limited resources of a society, but unlimited wants of it’s members.

Land – natural resources such as oil, trees, water, wind, gold, cattle, etc.

Labor – workers, human resources

Capital – machines, factories or anything that is used to produce goods and services

Entrepreneurs – business people that use the f.o.p. to produce goods and services

slide15

Essential Question 3, 4 + 5

  • Why does every decision involve a trade-off?
  • What does opportunity cost measure?
  • What does it mean to think at the margin?
  • We always give up something to get something else
  • The cost of the next best use of time money or resources
  • Thinking about the cost and benefits of decision-making
slide16

Essential Question 6

  • What is illustrated by the PPC Model; what 3 production possibilities are shown (a, d, x)?
  • The tradeoff between two goods.
  • inefficiency/underutilization, efficiency, currently unattainable
slide17

Chapter 1 Section 2

Activity: What to do with a pack of Gum?

section 2 scarcity
Section 2-Scarcity
  • We live in a world of relative scarcity.
  • Scarcity exists when resources have more than one valuable use.
  • Scarcity exists even in the midst of abundance.
  • Scarcity forces people to choose between alternatives.
scarcity
Scarcity
  • People choose thoughtfully from the alternatives they identify.
  • Individuals’ evaluation of alternatives is subjective.
  • Scarcity is dealt with more effectively by recognizing that the distinction between needs and wants is subjective.
  • Societies have adopted a variety of allocation systems to deal with scarcity.
scarcity1
Scarcity
  • The opportunity cost of choosing one alternative is the value given up by not taking advantage of the next best alternative.
  • To choose is to refuse:  the decision to take the benefits of one alternative means refusing the benefits associated with the next-best opportunity.
  • Good decision-making occurs at the margin.
scarcity2
Scarcity
  • We seldom make all-or-nothing decisions; everyday life is an exercise in marginal decision-making.
  • Decisions to continue or discontinue an activity are made by weighing the additional expected benefits against the additional expected costs.
section 2 opportunity cost
Section 2 – Opportunity Cost
  • Trade-off – alternatives that we give up whenever we choose one course of action over another
    • We always give up something to get something else
    • “There is no such thing as a free lunch.” (TINSTAAFL)
    • Individuals, households and society all face tradeoffs
opportunity cost
Opportunity Cost
  • Opportunity Cost – used by economists to measure the cost of decision-making; value of the most desirable alternative given up
  • Next best alternative use of money, time, or resources (Highest-valued alternative forgone)

Sleeping (Opportunity Cost)

Coming to Economics

trade offs
Trade-Offs

Individuals and Trade-Offs

Businesses and Trade-Offs

Society and Trade-Offs

trade offs1
Trade-Offs

Individual Tradeoffs=Trade-offs that directly effect the individual

Business Tradeoffs-Tradeoffs that business people make about how to use land, labor, and capital resources.

Society Tradeoffs-Tradeoffs that directly affect the country or their interests.

slide26

Decision-Making Grid

  • Method of comparing the costs of an action to the benefits received.
  • Cost-benefit-analysis
slide27

Decision-Making Grid

  • Method of comparing the costs of an action to the benefits received.
  • Cost-benefit-analysis
slide28

Decision-Making Grid

  • Method of comparing the costs of an action to the benefits received.
  • Cost-benefit-analysis
production possibilities model
Production Possibilities Model
  • PPF Model – shows combinations of output that an economy (society, firm or individual) has the ability to produce given the productive resources available
    • Used to visually represent opportunity cost

Quantity of

Computers

Produced

3,000

Production

Possibilities

Frontier

2,200

2,000

1,000

F

A

B

E

300

600

700

0

1,000

Quantity of

Cars Produced

production possibilities frontier model
Production Possibilities Frontier Model

a 0 and15

b8and13

c 14and11

d18 and 7

e 21 and 5

f25 and 0

Possibility Tickle Me Elmo Cookie Monster

production possibilities curve

a

b

c

d

f

e

Production Possibilities Curve
  • (PPC) – shows combinations of production and the opportunity cost at each point (at the margin)
    • Efficiency – using resources in such a way as to maximize the production of goods and services *
    • Points along the curve, lines (a – f) *

20

Efficiency

15

Cookie Monsters (millions per month)

10

5

0

5 10 15 20 25

Tickle Me Elmo's (millions per month)

underutilization inefficiency

x

Underutilization (Inefficiency)

Underutilization

  • Underutilization – using fewer resources than an economy/business is capable of; inefficient use of resources
      • Points inside the curve (inefficient use of resources)
growth
Growth
  • Growth (future technology) – the change in ability to produce, reflects a change in the curve; Currently unattainable level of production
  • New frontier (usually as a result of new technology)
production possibilities frontier model1
Production Possibilities Frontier Model
  • Constant opportunity cost - Linear shape of the curve represents a perfect/proportional tradeoff between two goods

Work

1 Hour

30 Min

B

A

C

0

30 Min

Play

1 Hour

shape of the curve
Shape of the Curve
  • Law of increasing opportunity cost - as production increases, the cost to produce an additional unit of that product increases as well.

Pizza

30

29

25

15

Calzones

slide36

PPC Activity

12

10

8

6

4

2

Good B

0

1 2 3 4 5 6

Good A

  • Answer the following questions based on the model above:
  • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.
  • The opportunity cost of increasing production from Good A from one unit to two unit is the loss of __________ unit (s) of Good B. The total loss is _____
  • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.
slide37

PPC Activity

12

10

8

6

4

2

Good B

0

1 2 3 4 5 6

Good A

  • Answer the following questions based on the model above:
  • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.
  • The opportunity cost of increasing production from Good A from one unit to two units is the loss of __________ unit (s) of Good B. The total loss is ____
  • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

2

2

4

12

slide38

PPC Activity

12

10

8

6

4

2

Unattainable/Future Growth

Good B

PPC - Current frontier/Efficient

Underutilzation/Ineffeciency

0

1 2 3 4 5 6

Good A

  • Answer the following questions based on the model above:
  • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.
  • The opportunity cost of increasing production from Good A from one unit to two unit is the loss of __________ unit (s) of Good B. The total loss is _____
  • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

2

2

4

12

section 2 basic economic concepts
Section 2 – Basic Economic Concepts
  • Economic Products – relatively scarce goods and services that have utility to consumers, and as a result command a price.
  • Utility – capacity to be useful to the consumer; a way to measure value.

Precious Jewels

Water

durable good any good that lasts three years or more when used regularly
Durable Good – any good that lasts three years or more when used regularly.

Television

Recording Equipment

economic growth
Economic Growth
  • A Nations total output of goods and services increases over time.
  • Gross Domestic Product - total market value of all the goods and services produced within the borders of a nation during a specified period.
wealth
Wealth
  • The total accumulation of a nation’s goods (stuff).
    • Buildings, highways, homes, cars, etc.
activity
Activity

Determine your own personal wealth