What is Economics? Science of decision making in a world where resources are limited. Economics is the Who makes decisions in economics? In economics, producers and consumers make choices. Producers are people/businesses who make goods and provide services Consumers are people/businesses who purchase goods and services 1. People haveNEEDS that are required for survival such as: FOOD, CLOTHING, SHELTER, 2. People also have many WANTS: things that make life for comfortable such as: The latest video game, television, heated car seats ________________________________________________________________________________ 3.GOODS: tangible items (things you can touch, see, smell) such as: CLOTHING, CARS, ROADS, MEDICINE, FOOD, 4. SERVICES what people DO for someone in exchange for something of value such as: MECHANIC, ELECTRICIAN, TEACHER, DOCTOR, CUSTODIAN basic economic problem 5. The is: SCARCITY When there are not enough resources to produce all the things people would like to have 6. Because of scarcity, society must make three economic decisions: 1)WHAT should be produced? During wartime metal may be used for weapons instead of pots and pans. Farmers may be used as soldiers resulting in less food production. 2) HOW should they be produced?Which natural resources should be used to build a road? Dirt Cement Gravel Should we allow more pollution in exchange for greater output and cheaper prices? 3) For WHOM to produce? This deals with the distribution of goods and services. Public Sector: Government: schools, roads Private Sector: Individuals 7. Choices involve trade-offs: Exchange one thing for the use of another. Pots & pans/ tanks Farmers/ soldiers Clean air/ cheap prices 8. Opportunity cost – The next best alternative you had to give up for a choice you made Skiing Concert Homework The Opportunity Cost of Economic Decisions 1. Jimmy is deciding between going to the Lady Gaga Concert and studying for his Algebra SOL. Jimmy loves Lady Gaga! She’s his favorite singer! Jimmy would prefer to go to the Gaga concert but needs to pass his Algebra SOL so he is torn on what to do. a. Is Jimmy a producer or consumer?________________________________ b. What is influencing Jimmy’s choice? c. If Jimmy goes to the Lady Gaga concert, what is his opportunity cost? d. If Jimmy studies for his SOL, what is his opportunity cost? 2. Sophia is deciding between going to college and getting a full time job. Sophia would prefer to go to the college but needs to help her family by making money. Sophia would make more money in the future though if she had a college degree. a. Is Sophia a producer or consumer?________________________________ b. What is influencing Sophia’s choice? c. If Sophia goes to college, what is her opportunity cost? d. If Sophia gets a job, what is her opportunity cost? Why is opportunity cost important to YOU? 3. When making a choice, many consumers only consider the price and their preference. Why is it important for consumers to also consider opportunity cost?