WHAT IS
ECONOMICS?
Economics Standard
SSEF1 The student will explain why limited productive
resources and unlimited wants result in scarcity,
opportunity costs, and tradeoffs for individuals,
businesses, and governments.
a. Define scarcity as a basic condition that exists when
unlimited wants exceed limited productive resources.
b. Define and give examples of productive resources
(factors of production) (e.g., land (natural), labor
(human), capital (capital goods), entrepreneurship).
c. List a variety of strategies for allocating scarce
resources.
d. Define opportunity cost as the next best alternative
given up when individuals, businesses, and governments
confront scarcity by making choices.
Unit 1: Basic
Economic Concepts
I WON THE
LOTTERY!
I’ll give you anything you want other than money.
What do you want?
Would your list ever end?
Why not?
Scarcity!!!
3
What is Economics?
• Economics - the science of scarcity.
• Scarcity- we have unlimited wants
but limited resources.
• Since we are unable to have
everything we desire, we must make
choices on how we will use our
resources.
• Economics is the study of choices
• In economics we study the choices of
individuals, firms and governments
Examples:
 You must choose
between buying jeans or
buying shoes.
 Businesses must choose
how many people to hire.
 Governments must
choose how much to
spend on welfare.
WRITE THIS DOWN!!!
ECONOMICS:
Study of how
people and nations decide
to use scarce resources
to satisfy unlimited wants
and needs.
WRITE THIS DOWN TOO:
2 areas of Economics
MICROeconomicsStudy of small economic units such as
individuals, firms, and industries (ex:
supply and demand in specific markets,
production costs, labor markets, etc.)
MACROeconomicsStudy of the large economy as a whole
or economic aggregates (ex: economic
growth, government spending, inflation,
unemployment, international trade etc.)
7
Copyright
ACDC Leadership 2015
1.
2.
3.
4.
5.
6.
Scarcity is a limited amount
of resources used to meet
unlimited wants and needs.
We cannot have all we
want.
Scarcity forces everyone to
make decisions and choices.
Every choice has a cost.
Opportunity cost.
Efficiency is getting the
most out of scarce
resources
TWO IMPORTANT
WORDS
GOODS
SERVICES
GOODS
Physical objects such as shoes &
cars - YOU CAN TOUCH THEM
SERVICES
Work or duties done for others,
usually for pay.
I NEED
FOOD!
WANT
I WANT
PIZZA!
An item that we desire but that is
not essential to survival
NEED
• An item necessary for survival
• Ex: food,shelter,and clothing
NEEDS OR WANTS?
Scarcity and Choices
..\Scarcity\mjm.Episode 2_ Scarcity
and Choice.mp4
SHORTAGE VS. SCARCITY
• Scarcity = limited amount of
resources. Resources are
FINITE. It is a naturally
occurring phenomenon.
• Shortage = temporary or
longer lasting. Caused by
man.
Shortage
1. Producers will not
or cannot offer
goods & services at
the current prices
2.A popular item is
sold out during the
busy holiday season
All Resources are Scarce!
This video was made in 2008.
Did it come true?
Copyright
ACDC Leadership 2015
WHAT IS
ANOTHER NAME
FOR THESE
SCARCE
RESOURCES?
THE FACTORS
OF
PRODUCTION
Factors of
production
Resources
used to
make all
goods &
services
MUST FILL
NEEDS
AND
WANTS
The Factors of Production
LAND
LABOR
CAPITAL
ENTREPRENEURSHIP
BRAIN BREAK
• Use the hand that you do NOT
write with.
• Draw something from the video with
that hand that you do NOT write
with….
LAND
 All natural resources
used to produce
goods & services
 Oil, Water, Air.
Fields, Forests
CATTLE
LAND?
Iron ore pellets
LAND: any natural resource
Gold, Natural gas, Fertile soil, Diamonds,
Oil, Water, Air
LABOR
Any and
all human
effort
used to
produce
goods &
services
Ex: TEACHER
CAPITAL
Any human-made
resource used to produce
other goods & services
TOOLS
CAPITAL
Types of Capital
1. Physical capital
2. Human capital
HUMAN CAPITAL
• Expertise or
knowledge that
performs labor and
produces economic
value.
• Ex: Engineers,
nurses
Human capital includes a taxi driver’s
knowledge of the streets
PHYSICAL CAPITAL
Humanmade
objects
used to
create
A woodworker’s
other
physical capital
goods & includes saws & drills
services
BULLDOZERS
Physical
Capital
FACTORIES
Advantages of physical
capital for example:
TECHNOLOGY
• Extra time
• Increased knowledge
• Greater productivity
ENTREPRENEURSHIP
1. Individuals who decide how
to combine land, labor, &
capital resources to produce
new goods & services.
2. In the economy, they decide
how to combine the factors
of production to create new
goods and services
3. They take the RISK….
Review with your neighbor…
1.Define Scarcity
2.Define Economics
3.Identify the relationship between
scarcity and choices
4.Explain how Macroeconomics is
different than Microeconomics
5.What are the factors of production?
6.Name 4 Disney movies
The Factors of
Production and
Money
(add to your notes)
Land - Rent
Labor - Wages
Capital - Interest
Entrepreneurial
Ability
Profit
ALLOCATION…
REMEMBER THESE?
1.Supply and demand
2.Authority
3.Random Selection
4.First Come, first served
5.Personal characteristics
6.Contest
OLD MACDONALD
SING-A-LONG
Watch the video and write specific
examples of the Factors of Production
that Old MacDonald has….
Trade-Offs and
Opportunity Cost
Scarcity means we
can’t have everything
we want so we must
make…..DECISIONS
INDIVIDUALS
OR
BUSINESSES
GOVERMENTS
OR
Why do decisions involve tradeoffs?
Resources are
limited
Who makes trade-offs?
Individuals, businesses,and
governments
Me and …..YOU
DECISION-MAKING PROCESS
WHEN YOU CHOOSE
ONE THING
YOU ARE NOT
CHOOSING SOMETHING
ELSE
YOU ARE
GIVING
SOMETHING
UP
All
of the
alternatives
that we
sacrifice when
we make a
decision
TRADE-OFFS
OPPORTUNITY COST
The SECOND
most desirable
opportunity
given up as
the result of
a decision
What you give up when you make
one decision over another is your
opportunity cost
OPPORTUNITY COST
CAN BE A
SPECIFIC
MEASUREMENT
It helps you:
 Determine some of
the opportunity costs
for your decision
Make a better
decision
Always desirable
nd
b/c it is 2 BEST
choice
BRAIN BREAK
• Write your birth date on
the sheet of paper.
• At the sound of the bell,
line up according to birth
dates in the hall.
Economics Standard
SSEF2 The student will give examples of how
rational decision making entails comparing the
marginal benefits and the marginal costs of
an action.
a. Illustrate by means of a production
possibilities curve the trade offs between
two options.
b. Explain that rational decisions occur when
the marginal benefits of an action equal or
exceed the marginal costs.
When a country
decides to use
its scarce resources,
ie Factors of Production
to make one thing…
…it must take
away using its
resources to
make something
else
It can use its scarce resources
to make a combination of both
But not unlimited amounts of
both
GUNS OR BUTTER
The phrase that refers to the
trade-offs that nations face
when choosing whether to
produce military or consumer
goods
A GUNS OR BUTTER ISSUE
The government of a country
must make a decision between
increasing military spending and
subsidizing wheat farmers
A GUNS OR BUTTER ISSUE
The government of
a country must
make a decision
between spending
money on a hospital
or spending the
same amount on
border security
Read the passage you picked up on the way
in today and answer the following…
1. What 3 items does Eisenhower cite that
are stealing from others?
2. What 2 groups are being robbed?
3. Other than money, what 3 things are the
world in arms spending?
4. The cost for a heavy bomber is what 4
things?
5. What is the cost of a single fighter
plane? A single destroyer?
6. What economic concept(s) is Eisenhower
discussing?
Guns and Butter
"Every gun that is made, every warship launched, every
rocket fired signifies, in the final sense, a theft from those
who hunger and are not fed, those who are cold and are not
clothed. This world in arms is not spending money alone. It
is spending the sweat of its laborers, the genius of its
scientists, the hopes of its children.”
“The cost of one modern heavy bomber is this: a modern
brick school in more than 30 cities. It is two electric power
plants, each serving a town of 60,000 population. It is two
fine, fully equipped hospitals. It is some fifty miles of
concrete pavement.”
“We pay for a single fighter plane with a half million bushels
of wheat. We pay for a single destroyer with new homes
that could have housed more than 8,000 people.”
-Dwight Eisenhower
70
Speaking against the military build up of the cold war
The USS Dwight Eisenhower
Launched in 1975 and cost $679 million ($4.5 billion in 2007 dollars)
71
71
HOW DOES
SCARCITY AFFECT
THE CHOICES
YOU MAKE?
Scarcity - A limited
quantity of resources
WE WANT
STUFF!
WE NEED
STUFF!
We want it ALL
video
…to meet unlimited wants & needs
What is scarce?...
The Factors of
Production
PRODUCTION POSSIBILITIES
CURVE
Shows alternate ways to use
an economy’s resources
• Efficiency is
getting the
most out of
scarce
resources.
• Why is it
important?
• Because the resources used to make
all goods and services are scarce
(limited)
• We must decide to use them in the
most efficient way.
• Being efficient allows us to get the
greatest output and meet the
greatest number of unlimited
wants and needs possible.
GRAPHS
Graph:
Offers a way
to visually
express ideas
that might be
less clear if
described with
equations or
words
Production
Possibilities Curve – draw this
Monsters
How does PPC show efficiency?
Shows maximum amount an
economy can produce with its
limited resources
QUESTION
How is opportunity cost
graphically measured?
How does PPC illustrate
opportunity cost?
Points on curve show alternate
ways to use an economy’s
resources
When one product is gained,some
of another is lost
PRODUCTION POSSIBILITIES CURVE
• Graph that shows alternate ways
to use an economy’s resources
• Shows maximum amount an
economy can produce with its
limited resources
• Compares the amount of
resources used to produce two
goods
Categories or specific goods
are compared on the
horizontal and vertical axes
Range of
combinations
Range of choices in the
combination of goods or
services produced are points
plotted on the graph
At Point Q, the country uses
its resources to make 11 units
of food and 5 computers
At Point T, the country uses
its resources to make 8 units
of food and 9 computers
Maximum
Output
Line on a production
possibilities curve that shows
the maximum possible output
Frontier
Line connecting the plotted
points is the frontier
EFFICIENT:
All resources are being used in
production to make the greatest
possible number of goods &
services
EFFICIENCY
An economy
working at its
most efficient
production levels
is producing on
the production
possibilities
frontier
H
UNDERUTILIZATION/
L
INEFFICIENCY
D
What does point D represent?
UNDERUTILIZATION
Draw a
point on
your PPC
Food
Production inside
the production
possibility curve
v
O
Clothing
POINT X
Beyond the frontier is
unattainable…At the present.
POINT Y
EXPANDING THE FRONTIER
Food
PPF2
PPF1
O
Clothing
Must add factors of production:
labor, technology, etc.
H
L
D
Which point is unattainable?
How to calculate opportunity cost
At Point T, how
many units of
food are being
produced?
8
At Point T, how
many computers
are being
produced?
9
At Point T, what is the
opportunity cost of
making one additional
computer?
3 Units of Food
To make 1 additional
computer, you have
to move from Point
T to Point V
This would lower your
production of food
from 8 units to 5
units
3 Units of Food
At Point T, what is the opportunity cost of
making one additional computer?
1 Computer
At Point R, what is the opportunity cost of making one
additional unit of food?
The opportunity cost of a
decision can be examined
(measured) by using a
DECISION-MAKING GRID
Used to measure the
opportunity cost of one decision
over another.
Rational decision
Weigh cost and
benefits of
alternatives
Make decision in your
best self interest
You are
weighing
COSTS
versus
BENEFITS
YOU HAVE TO BE THE JUDGE
OR
SLEEP
MONEY
THINKING AT THE MARGIN
• Deciding whether
to do or use one
additional unit of
some resource
•Small,
incremental
adjustments to a
plan of action
THINKING AT THE MARGIN
• Compare the
costs &
benefits
• Decide extra
cost or benefit
of doing
something
Decision making grid
 State the goal
 Identify the alternatives you are deciding
among
 List and rank the criteria you are judging
the alternatives by
 Cost/Benefit analysis-Weigh the benefits
and the costs by evaluating the
alternatives according to the criteria
 + if it meats criteria and – if not
 Choose based on frequency and placement
of the pluses and minuses
 Re-evaluate your decision
Thinking at the Margin
# Times
Watching Movie
Benefit
Cost
1st
2nd
3rd
Total
$30
$15
$5
$50
$10
$10
$10
$30
Would you see the movie three times?
Notice that the total benefit is more
than the total cost but you would NOT
watch the movie the 3rd time. 119
Marginal Analysis
In economics the term marginal = additional
Marginal analysis (aka: thinking on the margin) making
decisions based on increments
Example:
• When you decide to go to the mall you consider the
additional benefit and the additional cost (your
opportunity cost).
• Once you get to the mall, you continue to use marginal
analysis when you shop, buy food, and talk to friends.
• Since your marginal benefits and costs can quickly
change your analyzing them every second.
• What if your ex-girlfriend shows up?
The Point: You will continue to do something as
long as the marginal benefit is greater than the
marginal cost
120
Given the following assumptions, make a rational
choice in your own self-interest (hold everything
else constant)…what is Latin term? Ceteris
Paribus
1. You want to visit your friend for a week.
You will return Sunday night.
2. You work every weekday earning $100 per
day
3. You have three flights to choose from:
Thursday Night Flight = $275
Friday Early Morning Flight = $300
Friday Night Flight = $325
Which flight should you choose? Why?