What is…..
the study of how people, businesses, and
governments fulfil unlimited wants and needs
with limited resources
Economics is divided into two main branches of study.
Microeconomics - study of the decisions of individuals, households
and firms in specific markets.
Macroeconomics - study of the overall functioning of an economy
Why are economics important?
● We can’t fulfil every need and
want that we have
● What is the difference between
needs and wants?
● What are some examples of needs?
wants?
How Does economics force you to make decisions?
→ scarcity and factors of production
● Due to there being an unlimited number of
wants/needs and limited numbers of goods
and services, you must make decisions
● The idea of limited goods and services to
fulfil unlimited wants is called scarcity
● Shortages may also occur
● Shortages and scarcity are not the same!
Factors of production
● Entrepreneurs take
resources to create
goods and services
● These resources are
known as factors of
production (3)
John D Rockefeller or
Mr. Curtis with a mustache??
Land
●
●
natural resources used to produce goods and services
materials that are found in nature
labor
● The effort people devote to tasks for which
they are paid
● What are some examples of labor?
capital
● any human-made resource that is used to
produce other goods and services - two
types
○
○
physical capital (capital goods)
human capital
Identify land, labor and capital in this image
benefits of capital
● Capital saves individuals and companies
time and money
○
○
machines produce goods quicker
knowledge/skills helps humans work quickly and more
efficiently
● Extra time, more knowledge, and more
productivity
decision making
→ Trade-offs and opportunity cost
● Every decision you make, has an alternative
that we sacrifice when we make that decision.
○
this is called trade-off
● Trade-offs involve measurable things such as:
money, property or time
● and not easily measurable things such as:
enjoyment, happiness, well-being, satisfaction,
etc.
Who makes trade-offs?
●
EVERYONE!
○
You may decide to run track but give up playing baseball
○
You may forgo buying a new car and drive an older car to save money
for a new house
You may turn down a high-paying job for a lower-paying exciting job
○
●
Businesses
○
●
A restaurant sells it’s pizza oven in order to buy better advertising
Governments
○
“Guns or Butter”
○
Governments can spend more money on military goods (guns) but will
have less money to spend on consumer goods (butter)
opportunity cost
●
●
●
The most desirable option given up as a result of a
trade-off
In the previous example, better advertising is the most
profitable alternative to the pizza oven (making, selling
pizza.) The opportunity cost of keeping the pizza oven
was the chance to have better advertising
To find the opportunity cost you can use a decisionmaking grid
Alternatives
Alternatives
study for exam
go to mall with friends
benefits
do well on exam
make parents happy
socialize with friends
buy new clothes
benefits forgone
socialize with friends
buy new clothes
do well on exam
make parents happy
opportunity cost
seeing friends
time to study
Thinking and decision making at the margin
●
●
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The process of deciding whether to do or use one
additional unit of some resource
This process requires you to use a cost/benefit analysis
You must analyze the marginal cost and the marginal
benefit
Option
Benefit
Opportunity Cost
1st hour of extra study time
C on the test
one hour with friends
2nd hour of extra study time
B on the test
two hours with friends
3rd hour of extra study time
B+ on the test
three hours with friends
● Businesses and the government also
think at the margin
○ a business thinks at the margin when
deciding how many additional employees
to hire
○ and a legislator may think at the margin
when deciding how much to increase
spending on a governmental program
Production possibilities curve
●
●
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To illustrate choices and
trade-offs economists use
production possibilities
curves on graphs
This graph shows alternative
ways to use an economy’s
productive resources
The line plotted on the graph
is known as the production
possibilities frontier
Efficiency
●
●
Production possibilities curves show how efficient an
economy is, if the economy is growing, and the
opportunity cost for producing more goods or services
A production possibilities frontier will show an economy
at its highest efficiency
○
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at times economies operate inefficiently
Points inside the production possibilities frontier show
underutilization, in which the economy is using fewer
resources than it is capable of
Growth
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Keep in mind that a production possibilities curve is one
spot in time. Resources, in the real world, are
constantly changing
Changes in quantity or quality of land, labor, or capital
will move the curve
Growth is called a shift to the right (on the graph)
Production decrease is called a shift to the left (on the
graph)
cost
●
Lastly, production
possibilities graphs can be
used to chart cost
○
●
Cost as in opportunity cost,
not monetary cost
Switching between items of
production increases costs
this is explained by the
law of increasing costs
Technology
●
●
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Technology is the process used to create goods and
services
Similar to knowledge and skills, technology can increase
efficiency
Businesses and governments often spend more on
technologies to increase productivity and efficiency