Basic economic concepts, choices, rational decision making, investment in education/training, etc

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 (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.
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 tradeoffs between two options. b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

SSEF6 The student will explain how productivity, economic growth, and future standards of living are influenced by investment in factories, machinery, new technology, and the health, education, and training of people. a. Define productivity as the relationship of inputs to outputs. b. Give illustrations of investment in equipment and technology and explain their relationship to economic growth. c. Give examples of how investment in education can lead to a higher standard of living.
SSEPF1 The student will apply rational decision making to personal spending and saving choices. a. Explain that people respond to positive and negative incentives in predictable ways. b. Use a rational decision making model to select one option over another. c. Create a savings or financial investment plan for a future goal.

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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 and give examples of productive resources (e.g., land (natural), labor
(human), capital (capital goods), entrepreneurship).

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What went into making this?

Rubber (from
Malaysia) metal wood graphite machines
Someone who put all of this together.

LAND
- Natural, renewable resources
LABOR
- Human resources, people
-wood, rubber, graphite, land, animals
CAPITAL
-MENTAL and PHYSICAL
ENTREPRENUERSHIP
- A produced good used in the production of another good
-Machines, computers, buildings, etc
-The person or group responsible for putting the other 3 together to produce something

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OPPORTUNITY COSTS: the value of the NEXT BEST alternative given up when a choice is made
• NEXT BEST is key, the cost is not everything you give up
• Opportunity cost is not always money

Mr. Cannon really wants BOTH goods:
$3,500 $1,000

He decides to spend his money on:
$3,500
What was the price he paid?
What was his opportunity cost?

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You have $100 to spend at the mall, rank the following in the order (1, 2,
3) you would purchase them.
DVD set of a TV Show($60)
New outfit ($85)
New pair of shoes ($65)

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SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action.
Illustrate by means of a production possibilities curve the trade offs between two options.

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 a graph that shows the trade-off between two production options
• A visual representation of
OPPORTUNITY COSTS
2 Assumptions:
• The company/country is ONLY producing the two goods on the graph
• The company/country desires to use
ALL of their resources

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Suppose a country makes
Pencils and
Pens.
If they devoted
ALL of their resources to pencils, they could make 500 a day
500 300
…..to pens, they could make 300 a day

Pencils
500
The country/business can produce anywhere on the line when they use ALL of their resources
300
Pens

Pencils
500
450
200
If the country is producing ONLY pencils, and they want pens, they have to give up pencils.
The more pens they want…..
125 200
300
Pens

Pencils
500
200 X
Y
75
At point X, the country or business is producing below its possibilities and is INEFFICIENT
At point Y, the country or business is producing beyond its possibilities and is NON-SUSTAINABLE.
300
Pens

GOOD
A
GOOD
B
200 0
180 25
150 50
100 75
25
0
100
110
After graphing, answer these questions:
1. Assume the country is currently producing 180 of good A and 25 of Good B. If the country wants to make 75 of Good B, how many of good A must they give up?
2. If the country was producing 150 of Good A and 30 of Good B, what could you conclude about the country’s economy?

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Define productivity as the relationship of inputs to outputs.

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We measure productivity as the relationship of inputs to outputs
For a business it’s the cost of all their resources compared to their revenue
For a country it’s the cost of all of their resources as compared to their
GROSS DOMESTIC PRODUCT (GDP)

• Increased Capital

More factories, tools, machines, etc
• Improve technology

Faster machines, multi-tasking devices, machines with larger capacity
• Train/educate workers
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Specialization, new techniques, ability to USE technology
• Improve entrepreneurship
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Better organization of resources, motivational tools, leadership, worker morale

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HEADLINE 1: WHIRLPOOL FACTORY INCREASES
PRODUCTIVITY
What are some steps the Whirlpool Factory could have taken to increase productivity?
How could this increase in productivity benefit the workers?
HEADLINE 2: U.S. PRODUCTIVITY RISES RAPIDLY FOR
6TH CONSECUTIVE QUARTER
How can rising productivity benefit workers? Producers? The nation?
Could there be some disadvantages of increasing productivity, at least to some people?
HEADLINE 3: PRODUCTIVITY LAGS FIRST THREE
QUARTERS OF 93
Why is lagging productivity a problem for the nation, businesses, and individual workers and consumers?

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Give illustrations of investment in equipment and technology and explain their relationship to economic growth.
Give examples of how investment in education can lead to a higher standard of living.

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For countries, we look at economic growth in terms of GROSS DOMESTIC PRODUCT
(GDP) and GDP PER CAPITA
GDP = dollar amount of all goods and services produced in an economy
GDP Per Capita = GDP divided by the population
What makes an economy grow?

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High Investment in physical and human capital
Greater economic freedom
• lower taxes, fewer regulations, protecting property rights
Strong Incentives to Save
Competitive Markets
Political Stability
Free Trade

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Cotton Gin in America
• Before Cotton Gin: 1 man = 1 pound of clean cotton
• After Cotton Gin: 1 man = 50 pounds of clean cotton

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Assembly Line
• Before AL: .08 car frame in an hour
(1913)
• After AL: .67 car frame in an hour
(1914)

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Wheat Harvesting (Bushels in 1 hour)
1800 1900 2000
.26
.96
25

Country Literacy
Rate
Bahamas 95.6%
Australia 99%
Bolivia 86%
US
Sudan
99%
61%
GDP per capita
$25,000
$36,300
$4,000
$48,500
$2,200

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Country A: Argentina
• Country C: Nigeria
Population: 37,384,816
• Population: 126,635,626
PerCapita GDP: $12,900
• PerCapita GDP: $950
Literacy Rate: 96.2%
• Literacy Rate: 57.1%
• Country B: Japan
• Population: 126,771,662
• PerCapita GDP: $24,900
• Literacy Rate: 99%
• Country D: Russia
• Population: 145,470,196
• PerCapita GDP: $7,700
• Literacy Rate: 98%
• Country E: Singapore
• Population: 4,300,419
• PerCapita GDP: $26,500
• Literacy Rate: 93.5%

Capital Goods
Consumer Goods
•Not 1 magical thing, combination of several factors
•Increasing overall productivity is key

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High Investment in physical and human capital
Greater economic freedom
• lower taxes, fewer regulations, protecting property rights
Strong Incentives to Save
Competitive Markets
Political Stability
Free Trade

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A natural disaster such as a hurricane has the effect of Case
1 on a local economy. Here, both capital (buildings and equipment) and labor are lost due to the calamity. Since the region’s production inputs are reduced, so too is its
PPC, moving from A1 to A2. The region may recover over time, but the immediate effect of the disaster is to move the entire PPC inward.
Conversely, consider a local area with a booming economy; people are moving there in droves (providing labor), and businesses are investing in the area to take advantage of the increased number of consumers and potential employees. This would lead to a condition illustrated in
Case 2, where the entire PPC shifts outward.

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Now imagine a small town has just
grant from the federal government. The amount of capital available to this economy has greatly increased while its labor pool remains unchanged, so a movement like that shown in Case 3 occurs. The new PPC, C2, shows how the investment will create an enhanced ability to produce capital goods. Lastly, increases in labor inputs (such as a higher number of college graduates) will lead to Case 4.
Here, the boost to the labor force allows the PPC to shift from D1 to D2.

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Analyzing costs and benefits before making a decision
MARGINAL thinking is key
• What is the cost/benefit of my NEXT decision
• Past decisions don’t matter
• this affects PRODUCERS AND
CONSUMERS
A rational decision is made when the marginal benefit is

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For producers, this is simply measured in dollars
• Marginal costs of the inputs vs. marginal revenue
For consumers, it is trickier
• We measure benefits in terms of
UTILITY
• How “useful” is the item or service
• We use “utils” as the measure for this

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You purchased a ticket to see
 10 minutes into the movie, you realize it is going to be horrible.
 DO YOU STAY OR LEAVE?
 Write down your answer and reason WHY.

STAY
LEAVE
COST
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Can’t discuss with others
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Won’t see ending
BENEFIT
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Lost opportunity to do next best thing
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See end of movie
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Can discuss movie with others
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Can do next best thing which may bring more satisfaction

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A person opens a business making sandwiches. He’s purchased a store and all of the food products, now he wants to hire some people. He decides to hire two people to start with and pay them $50 a day. His costs/benefits sheet for a month looks like this:

1 Month
Rent/Food/Entrepreneurship = $750
Worker #
1
2
Cost Production Price/San d
$750
$750
250 sandwiches
250 sandwiches
5
5
Total Costs: 750+1500=2250
Total Output: 500 x 5 = 2500

1 Month
Rent, Food, Entrepreneurship - $750
Worker # Cost Production Price/Sand
1
2
3
4
$750
$750
$750
$750
250
250
200
100
5
5
5
5
Should he hire worker #3? Why?
What about #4? Why?

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Scarcity
• definition
• examples
Opportunity cost
• definition
• examples
Production
Possibilities Curve
• What do they show?
• interpret points
(below, above,
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Factors of production
• Define them
• Pick them from an example
Productivity/Growth
• What causes it
• How do we measure it
Rational Decision
Making/Marginal
Analysis
• What is marginal
• When do stop/start

 a)
SSEF1 The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.
Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources.
d)
Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

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SCARCITY: a condition that exists when UNLIMITED needs/wants exceed the LIMITED available resources
• The central problem in economics, all things revolve around scarcity
• Must be a want/need for the item and a limited amount
• There are DEGREES of scarcity
If there is a lot of something that no one

LESS SCARCE
- Large quantity, few uses, low demand
MORE SCARCE
- Small quantity, many uses, high demand

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Old books that, for 2 years, have sat on a shelf that reads “Free!
Take One.”
Oil in Saudi
Arabia
One book, 5 students needing to study the book for a quiz
Diamonds
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Oil in England
A $10 bill to a millionaire
An MVP basketball player
A copy of Mr.
Cannon’s tests
VHS Tapes to a
10 year old
Knowledge of
Economics

LESS SCARCE
- Large quantity, few uses, low demand
 Old books that, for 2 years, have sat on a shelf that reads “Free!
Take One.”
 Oil in Saudi Arabia
One book, 5 students needing to study the book for a quiz
 Diamonds
Oil in England
 A $10 bill to a millionaire
 An MVP basketball player
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A copy of Mr. Makaya’s tests
 VHS Tapes to a 10 year old
 Knowledge of Economics
MORE SCARCE
- Small quantity, many uses, high demand

1 Opportunity cost is BEST described as the
A most expensive resource used in production
B sum of all production costs
C value of the next best alternative forgone when a choice is made
D monetary value of all alternatives forgone when a choice is made

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1. Answer: C Standard: Scarcity and opportunity cost
Opportunity cost is the value of the next best economic choice you did
NOT make. Choice D is the sum of all possible opportunity costs, but opportunity costs are not added up.
Only the best alternative forgone, choice C, counts as the opportunity cost.

What BEST explains the shift of the production possibilities curve from technology
B1 to B2?
B inflationary increases in process
C higher costs of producing corn
D higher costs of producing wheat

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2. Answer: A Standard: Investment and economic growth
An outward expansion of a production possibilities frontier means greater productivity. One way greater productivity can be achieved is by improving technology.

3 Alex and Dylan mow and trim lawns.
Currently, each man mows and trims a lawn by himself, but the process takes a long time. They would MOST likely improve their efficiency if
A Alex and Dylan mow a lawn and then trim it together
B Alex mows a lawn while Dylan trims the same lawn
C Alex trims Dylan’s lawn while Dylan trims
Alex’s lawn
D Alex and Dylan reduce the number of

3. Answer: B Standard: Benefits of specialization
One of the best ways to improve efficiency is to specialize, which means each person in a production process concentrates on a specific task. Choice A would still require each man to mow and trim, while choice C simply changes the lawn each man is trimming. Choice D, on the other hand, reduces the total number of lawns they mow but does not improve the efficiency with which they complete their task. Only choice
B would be a specialization of labor. In this case,
Dylan now does one task in the production process (trims) while Alex does another task
(mows). According to economic theory, this specialization will make each man better at his respective task and reduce the time it takes to change from one task to another, thereby increasing their overall efficiency.