Agenda
 Review Class Rules
 Key Terms
 Article
 Worksheet
 Student Videos
 Production Possibilities Curve
Production Possibilities Worksheet
 HOMEWORK
Review Powerpoint for next class (online)
Read “Current Reading Assignment” (online)
 Class Rules
Be on time
Pay attention
Be prepared
Don’t use cellphones during class
• Comments
• You are responsible to monitor your grade
• You are responsible to seek help (e-mail is best
way to contact me)
Being Prepared
Do the reading
Assigned
Print and Review the Powerpoint before
class
Course Overview – Review
Powerpoints introduce the concepts
Lectures explain the concepts
Readings, videos, movies apply the concepts
Course Overview – Review
Powerpoints introduce the concepts
Lectures explain the concepts
Readings, videos, movies apply the concepts
So if you don’t review and print the
powerpoints before class, success is not likely
Course Overview (cont.)
Lectures explain the concepts
not enough class time to write down all the
information contained in the powerpoints
Absences
You are responsible for…
• Getting the material
• Reviewing the Class Presentations (posted on
Facebook)
• Getting the homework assignment, reading
assignment, etc.
Absences (continued)
Tests…
You need will make-up the test at detention when you
return.
You will receive a ZERO if you have not made
arrangements and I return the test.
E-mail is the best way to make arrangements to take the
test.
Extra Credit given to the class is everyone attends class on
test day.
Additional Class Materials
Multi-Colored pens (or pen)
One inch three ring binder
Laptops, kindles, iPads, etc.
Yes, you can use them.
Module 1 – What is Economics?
Economics is the study of human
behavior. How people allocate limited
resources to produce goods and services
to satisfy unlimited needs and wants.
Key terms
Factors of Production
Scarcity vs. shortage
Need vs. want
Good vs. Service
Trade-off vs. Opportunity Cost
Entrepreneur
Four Factors of Production (resources)
1.
Land

All Natural resources
Example - Oil, Coal, Trees
2.
Labor

People producing a good or service
Example – Auto worker, Lawyer, Teacher
3.
Human Capital
•
Training for Labor
Example – College Education, Seminars
4.
Physical Capital

Tools used by labor to make goods and services
Example – Computers, Buildings, Factories, desks
Definition of Economics….The study of human
behavior. How people allocate limited
resources* to produce goods and services to
satisfy unlimited needs and wants.
*The four factors of production are resources that
are limited.
Scarcity vs. shortage
Scarcity is permanent
• But not necessarily a small amount
• Example: Ocean water
Shortage is temporary
• But temporary may be days, weeks months or
even years
 Need vs. Want
Need = gotta have it
Want = nice to have it
 For each person to decide
 Cellphone example
The study of human behavior. How people allocate
limited resources to produce goods and services to
satisfy unlimited needs and wants.
Good vs. Service
Good
•
•
•
Tangible
Generally produced with physical skills, physical capital
Examples….a car, a desk, an airplane
Service
• Intangible
• Generally produced with knowledge, human capital
• Examples…Medical services, legal services, education
Trade-off vs. Opportunity Cost
 Trade-off = All the choices given up
 Opportunity Cost = Most valuable choice (trade-off) given
up
 Examples
• Your time
• Cafeteria
The study of human behavior. How people allocate limited resources to
produce goods and services to satisfy unlimited needs and wants.
Because resources are limited, you have to make choices.
“There is no free lunch.”
There are always trade-offs.
Entrepreneur
Uses resources (factors of production) to
produce goods and services to satisfy needs
and wants
Entrepreneur
Uses resources (factors of production) to produce
goods and services to satisfy needs and wants
Entrepreneur
Uses resources (factors of production) to
produce goods and services to satisfy needs
and wants
Examples
La Salle HS
Jack FM
Bank ATM
Amazon.com
Quick Review…
1. What is the difference between a shortage and scarcity?
(a) A shortage can be temporary or long-term, but scarcity
always exists.
(b) A shortage results from rising prices; a scarcity results
from falling prices.
(c) A shortage is a lack of all goods and services; a scarcity
concerns a single item.
(d) There is no real difference between a shortage and a
scarcity.
2. Which of the following is an example of using physical
capital to save time and money?
(a) hiring more workers to do a job
(b) building extra space in a factory to simplify production
(c) switching from oil to coal to make production cheaper
(d) lowering workers’ wages to increase profits
 Article
Search Economic Terms
 Worksheet
Chapter 1, Section 1
Student videos
http://www.youtube.com/watch?v=fdM8ss
BvNxU
THREE MINUTE BREAK
http://www.online-stopwatch.com/fullscreen-stopwatch/
Be back when time expires or detention
awaits you.
Production Possibilities Curve
Graph showing the trade-offs (i.e. possible
production outcomes)
 Production Possibilities Curve
 Graph showing the trade-offs (i.e. possible production outcomes).
Trade offs is a key concept. More of one good or service, less of
the other.
Product (good
or service) B
Product (good or service) A
Production Possibilities Curve
Why is the production possibilities curve
“bowed out”?
Production Possibilities Curve
Why is the production possibilities curve
“bowed out”?
 ANSWER: The Law of Increasing Opportunity Costs
Production Possibilities Curve
Why is the production possibilities curve
“bowed out”?
 ANSWER: The Law of Increasing Opportunity Costs
 As you produce more of one product (Good or Service A),
the cost (opportunity cost) increases.
Production Possibilities Curve
Why is the production possibilities curve
“bowed out”?
 ANSWER: The Law of Increasing Opportunity Costs
 As you produce more of one product (Good or Service A),
the cost (opportunity cost) increases.
 WHY you might ask
 Example
A production possibilities graph shows the cost of producing an item.
To produce the first eight million tons of watermelons cost of 1
million pairs of shoes. The Trade Off (the real cost) of producing
the first eight million tons of watermelons (to go from 0 to 8) is the
one million tons of watermelons that you give up (going from 15 to
14)
Production Possibilities Graph
25
Point A
0
15
Point B
8
14
14
12
18
9
20
5
21
0
Shoes (millions of pairs)
Watermelons
Shoes
(millions of tons) (millions of pairs)
20
15
10
A
B
c (14,12)
d (18,9)
5
0
5
10
15
20
25
Watermelons (millions of tons)
At Point A you can produce 0 watermelons and 15 million pairs of shoes. At Point B
you can produce 8 million tons of watermelons and 14 million pairs of shoes.
Trade-offs
Why would the entrepreneur choose to produce
more watermelons?
What is the cost of that decision?
What is the benefit?
Why does Apple choose to produce more
iPads?
What is the cost of that decision?
What is the benefit?
What is the cost to produce the first million pair of shoes?
Production Possibilities Graph
25
0
15
8
14
14
12
18
9
20
5
21
0
Shoes (millions of pairs)
Watermelons
Shoes
(millions of tons) (millions of pairs)
20
15
10
c (14,12)
d (18,9)
5
0
5
10
15
20
25
Watermelons (millions of tons)
Law of Increasing Costs…Revisited
The Law of Increasing Opportunity Costs - As you
produce more of one product (Good or Service A),
the cost (opportunity cost) increases.
The cost of first million shoes cost 200,000
tons of watermelons
The cost of the fifteenth million (still one
million shoes) cost eight million tons.
THE COST INCREASED
Law of Increasing Costs…Continued
Why is that the case?
Law of Increasing Costs…Continued
Why is that the case?
Because the entrepreneur uses the best
shoe making resources (most productive
factors of production) for making shoes
first…the worst / least productive last. As
such, it requires more resources to
produce the last ton.
Production Possibilities Graph
25
Shoes (millions of pairs)
 Efficiency means
using resources in
such a way as to
maximize the
production of goods
and services. An
economy producing
output levels on the
production possibilities
frontier is operating
efficiently.
20
S
15
a (0,15)
b (8,14)
c (14,12)
10
g (5,8)
d (18,9)
5
e (20,5)
A point of
underutilization
0
5
10
f (21,0)
15
20
25
Watermelons (millions of tons)
Efficient is on the production possibilities curve. Anywhere
on the curve but on the curve.
Production Possibilities Graph
25
Shoes (millions of pairs)
 Growth If more
resources become
available, or if
technology improves,
an economy can
increase (more stuff) its
level of output and
grow. When this
happens, the entire
production possibilities
curve “shifts to the
right.”
Future production
Possibilities frontier
T
20
S
15
a (0,15)
b (8,14)
c (14,12)
10
d (18,9)
5
e (20,5)
f (21,0)
0
5
10
15
20
Watermelons (millions of tons)
25
Guns or Butter
 Phrase used by economists to describe trade-offs.
Military Goods
(guns)
Consumer Goods
(Butter)
 Worksheet, Production Possibilities Curve
 Homework


Print and Review Powerpoint for next class
Two Reading Assignment for next class
1. “There's No Such Thing As a Free Lunch”
There's No Such Thing As a such thing as
a free lunch". The adage refers to the idea
that it is impossible for a man to get
something for nothing. Every choice you
make has a next, best alternative that you
could have chosen but didn't. That
foregone opportunity is known as
opportunity cost. That is, the price you
paid for doing whatever it is you did was
the opportunity you can no longer enjoy.
Whether or not you are successful in life
depends almost entirely on how well you
manage your own, personal opportunity
cost. What if Julia Child hadn't begun
cooking at age 37? What if Sam Walton
hadn't started Wal-Mart stores at 44 years
old? What if Warren Buffett had listened
to his father, Howard Graham, and his
mentor, Benjamin Graham, and not gone
to work in the investment industry? The
opportunity cost of each of those
decisions would have been staggering, in
retrospect. That is the nature of life. As
the CEO of your time here on Earth, you
have to decide how to manage your own
opportunity costs. Do you go to art
school or become a doctor? Do you
invest in the hi-tech start-up your friends
are putting together or strike out on your
own?
Questions to consider (i.e. be able to answer)
•
•
Opportunity cost is all around you. Do
you go to the gym or eat a cookie? Apply
for that job in an industry you love or
stick with a field in which you are
comfortable? But it is especially present
in your finances. It can go unnoticed
because the average person doesn't know
the power of compound interest and the
effect small decisions can have on where
you ultimately end up on your journey to
wealth. A single $4 coffee from
Starbucks invested at 10% for 50 years is
really $470. A $9 lunch is really $1,057
in future wealth gone. That is why I
What is the opportunity cost to Adam of failing to start saving at
age 18?
What is the opportunity cost to John of saving at age 18? What
did he give up? (Hint: there is no single right answer, you have to
think “What might John have given up?”)
2. “Pass the Book, Hold the Oil”
Questions to consider
•
•
•
What factor of production is key to Taiwan’s success?
Which factor of production was important....
 When Columbus sailed to the new world?
 During the period of colonization?
 During the industrial revolution?
How does this effect you in 2013?
HANDOUTS