What is Economics? Define Economics and the importance of making choices Define Economics and the importance of making choices Compare Scarcity and shortage.

What is Economics?What is Economics?

Define Economics and the Define Economics and the importance of making choicesimportance of making choices

Compare Scarcity and shortageCompare Scarcity and shortage Identify key terms: land, labor and Identify key terms: land, labor and

capital.capital. The role of entrepreneursThe role of entrepreneurs

CH 1.1

What is Economics?What is Economics?

EconomicsEconomics is the study of how people is the study of how people seek to satisfy their needs and wants by seek to satisfy their needs and wants by making choices.making choices.

Or how people look to fill their Or how people look to fill their unlimited wants with limited resources.unlimited wants with limited resources. Need:Need: Air, food, shelter, i.e. things Air, food, shelter, i.e. things

necessary for survival necessary for survival Want:Want: Something desired but not Something desired but not

necessary for survivalnecessary for survival

GoodsGoods - physical objects - physical objects Services - Services - Actions or activities that Actions or activities that

someone performs for anothersomeone performs for another

While our wants may be unlimited, there While our wants may be unlimited, there are only so many resources available to are only so many resources available to us and to create goods and services.us and to create goods and services.

Shortages come and go, but scarcity Shortages come and go, but scarcity always exists….Why?always exists….Why?

Goods and services are made from resources that Goods and services are made from resources that are scarceare scarce

Scarcity Scarcity implies limited quantities of implies limited quantities of resources to meet unlimited wants.resources to meet unlimited wants. Sooner or later a limit is always reachedSooner or later a limit is always reached Scarcity and shortage are not the same Scarcity and shortage are not the same

thingthing

Shortage: Shortage: Producers cannot or will not Producers cannot or will not offer goods or services at current pricesoffer goods or services at current prices

Can be short term or long termCan be short term or long termWhat could cause a shortage?What could cause a shortage?

Factors of ProductionFactors of Production Resources that are used to make all goods Resources that are used to make all goods

and services.and services. Land Land Labor Labor CapitalCapital

LandLand All natural resources that are used to All natural resources that are used to

produce goods and services.produce goods and services. Materials found in natureMaterials found in nature

Fertile land for farmingFertile land for farming Products in or on the landProducts in or on the land

Coal, water, forests, etcCoal, water, forests, etc

LaborLabor Effort that a person devotes to a task for Effort that a person devotes to a task for

which that person is paidwhich that person is paidAnything you do and get paid for itAnything you do and get paid for it

CapitalCapital Any human made resource that is Any human made resource that is

used to produce other goods and used to produce other goods and services. Two types:services. Two types: Physical Capital (capital goods) - Physical Capital (capital goods) -

buildings and toolsbuildings and tools Saves time and moneySaves time and money Increases productivityIncreases productivity Other benefitsOther benefits

Extra timeExtra time More knowledgeMore knowledge Time to do other thingsTime to do other things

Human CapitalHuman Capital The knowledge and skills that a person The knowledge and skills that a person

acquires through education and experienceacquires through education and experience

Economies require both human and Economies require both human and physical capital to produce goods and physical capital to produce goods and servicesservices

EntrepreneurEntrepreneur Ambitious leaders who decide how to Ambitious leaders who decide how to

combine land, labor, and capital combine land, labor, and capital resources to create new goods and resources to create new goods and servicesservices They take risks and develop new ideas, They take risks and develop new ideas,

start new businesses, create new start new businesses, create new industries and fuel economic growthindustries and fuel economic growth

Could be anyoneCould be anyone

Opportunity CostOpportunity Cost

Why is every decision a trade off?Why is every decision a trade off? Identify the trade offs and Identify the trade offs and

opportunity costs using a decision opportunity costs using a decision making gridmaking grid

How do people make decisions by How do people make decisions by thinking on marginthinking on margin

CH 1.2

Trade offsTrade offs

Everyone makes decisions that Everyone makes decisions that involve trade offsinvolve trade offs All the alternatives we give up All the alternatives we give up

whenever we choose one course of whenever we choose one course of action instead of anotheraction instead of another

Trade offs in businessTrade offs in business

How businesses choose to use land, How businesses choose to use land, labor, and capital resources labor, and capital resources

Guns or ButterGuns or Butter If a country decides to use more If a country decides to use more

resources to make military items, it resources to make military items, it has less resources available to make has less resources available to make consumer goods and vice versaconsumer goods and vice versa Why?….Resources are limitedWhy?….Resources are limited

Trade offs in businessTrade offs in business

If a farmer decides to grow broccoli, If a farmer decides to grow broccoli, there is no land available to grow there is no land available to grow corncorn

If a carpenter specializes in chairs, If a carpenter specializes in chairs, there is no wood to build tablesthere is no wood to build tables

Opportunity CostsOpportunity Costs are the most are the most desirable alternatives given up when desirable alternatives given up when a decision is madea decision is made

More guns, less butter. Butter is the More guns, less butter. Butter is the opportunity costopportunity cost

Decision Making GridsDecision Making Grids

Alternatives

Benefits

Decision

Opportunity Cost

Benefits Forgone

Thinking at the marginThinking at the margin: instead : instead of thinking about a decision as a of thinking about a decision as a whole, think about it in terms of whole, think about it in terms of units.units.

Study time: 1 hour of studying = C = 1 Study time: 1 hour of studying = C = 1 less hour of sleep. 2 hours = B = 2 less less hour of sleep. 2 hours = B = 2 less hours, 3 hours = B+ = 3 less hours.hours, 3 hours = B+ = 3 less hours.

Improvement between 2 and three hours is Improvement between 2 and three hours is not enough to sacrifice the extra hour of not enough to sacrifice the extra hour of sleep.sleep.

Cost does not equal the benefit. Take the BCost does not equal the benefit. Take the B Once the costs outweigh the benefits, Once the costs outweigh the benefits,

no more units should be added.no more units should be added.

1 Hour of 1 Hour of studyingstudying CC

Lose 1 hour Lose 1 hour of sleepof sleep

2 hours of 2 hours of studyingstudying BB

Lose two Lose two hours of hours of

sleepsleep

3 hours of 3 hours of studyingstudying B+B+

Lose three Lose three hours of hours of

sleepsleep