Fundamentals of economics

advertisement

FUNDAMENTALS OF

ECONOMICS

(TOPIC 1)LEARNING OBJECTIVES

Explain why scarcity & choice are the basis of economics in every society

Describe the 3 economic factors of production

Identify why every decision involves trade-offs

Explain the concept of opportunity cost

Describe how people make decisions by thinking at the margin

Economics:

The study how people seek to satisfy their needs & wants by making choices.

SCARCITY

SCARCITY MEANS MAKING CHOICES

Unlimited wants, limited resources

Scarcity does NOT mean shortage https://www.pearsonrealize.com/com munity/program/d23f696c-58d8-3512b201-60055f184497/10/tier/1f587f5fd37a-3c9e-9674-

299bea7942fa/1/lesson/2c43e957-2f01-

3db7-b65e-

170c210b17e4/1/content/b7e415a4e020-3f89-971f-d766e57f044a/1

Entrepreneurs: people who decided how to combine resources to create new goods & services

Factors of

Production

Land

Labor Capital

Physical

Human

TRADE-OFF

Act of giving up one benefit in order to gain another, greater benefit

Football or school play?

Part time job or volunteer work?

Vacation or new car?

College or job?

Grow broccoli or squash?

Make chairs or tables?

New roads or education?

GUNS OR BUTTER

Governments face trade-offs

Guns (military goods)

Butter

(consumer goods)

1.2 OPPORTUNITY COST & TRADE-OFFS

In most trade-off situations, one of the rejected alternatives is more desirable than the rest. The most desirable alternative somebody gives up as the result of a decisions is the opportunity cos.

OPPORTUNITY

COST

The most desirable alternative somebody gives up as the result of a decision

OPPORTUNITY COST

Go to bed early or stay up studying

Go to bed early or go to a party

Go to bed early or stay up watching Netflix

Your opportunity cost is…

• m

CHECK POINT

Someone gives up going to see a movie to study for a test in order to get a good grade.

The opportunity cost is ____________

Jill decides to drive to work instead of taking the bus. It takes her 90 minutes to get there and the bus ride would have been 40, so her opportunity cost is ________

David decides to quit working and go to school to get further training. The opportunity cost is __________

THINKING AT THE MARGIN

When making decisions, economists look at opportunity cost & thinking at the margin.

Deciding how much more or less to do

Marginal = Additional

When you add one more additional unit, how much benefit will you get?

MARGINAL COST/MARGINAL BENEFIT

To make a sensible decision, weigh the marginal cost v the marginal benefit

Extra cost of adding one additional unit

Extra benefit of adding the same unit

If MB is > MC, then go for it

Look at the marginal cost of each extra hour of studying & compare it to the marginal benefit.

Make your own Decision Making at the

Margin chart

(1.3) PRODUCTION POSSIBILITIES

CURVES

Objectives:

Interpret a PPC

Explain how PPC show efficiency, growth, & opportunity cost

Explain why a country’s production possibilities depend on its resources & technology

A farmer needs to decide what to grow

& how much.

In economics you need to decide how to use resources most efficiently

PRODUCTION POSSIBILITIES CURVE

PRODUCTION POSSIBILITIES CURVE

To decide what and how much to produce, economists use a PPC

Any spot on the line represents an economy working at its most efficient level

The line, Production Possibilities Frontier, shows the different combinations possible

Any spot on the line represents an economy working at its most efficient level

The line, Production Possibilities Frontier, shows the different combinations possible

Any spot on the line represents an economy working at its most efficient level

Underutilization: the use of fewer resources than the economy is capable of using

OPPORTUNITY COST

OPPORTUNITY COST

A-B: 20

B-C: 60

C-D: 100

D

Law of Increasing

Opportunity Costs:

Trade-offs get more & more expensive

GROWTH

A PPC is a snapshot

In the real world, resources are constantly changing

If quantity or quality of land, labor, or capital changes, the curve will move

GROWTH

A PPC is a snapshot

In the real world, resources are constantly changing

If quantity or quality of land, labor, or capital changes, the curve will move

Growth examples: more immigration

, new natural resources found, better technology

Curve shifts left when production capacity decreases.

Curve shifts left when production capacity decreases.

Decrease in supplies, loss of land during war, natural disaster

GROWTH

If there is an increase in resources available for one product, then the

PPF may shift at just one end.

Download