What is Economics?
Mrs. Waid
Scarcity & Factors of Production
Essential Questions:( pages 3-6)
1. Explain why scarcity and choice are the basic problems of economics
2. What are the three factors of production? What are the two types of capital?
3. Explain the role of entrepreneurs.
4.Explain why economists say all resources are scarce.
What is Economics?
Economics is the study of how people make choices to satisfy their wants.
examples- You must choose how to spend your time
businesses must choose how many people to hire
What is the difference between
scarcity and shortages?
People have unlimited needs and wants. People cannot have everything
they want because of scarce resources. As a result, people need to
consider their options and make a decision about which choice will meet
their needs the best.
People must make choices because of scarcity.
-Scarcity occurs when there are limited quantities of resources to meet
unlimited needs or desires
How are scarcity and shortages different?
-Shortages occur when producers will not or cannot offer goods or
services at current prices. Shortages could be either short term or long
term.
- Scarcity always exists because goods are made by scarce resources
What are the factors of
production?
Land- All natural resources that are used to produce goods and services.
Labor-Any effort a person devotes to a task for which that person is paid.
Capital- Any human-made resource that is used to create other goods and
services.
Real life example:
Land
popping corn
Labor
The human effort
to pop the corn
Capital
Corn-Popping device
Different types of capital
Physical Capital- Human-made objects used to create other goods and
services. examples: buildings and tools.
Benefits of physical capital:
1. extra time
2. more knowledge
3. more productivity
Human Capital- the knowledge and skills a worker gains through education
and experience.
An economy needs both physical and human capital to produce goods
and services.
Entrepreneurs
Entrepreneur- An ambitious leader who combines land,labor, and capital to
create and market new goods and services.
Entrepreneurs:
- decide how to utilize the factors of production
- take risks to develop new ideas
- start businesses
- create new industries
-fuel economic growth
Practice Multiple Choice Section 1
1. Any resources that are made by humans and used to create other goods and services are called
a. services.
b.production.
c. capital.
d. labor
2. An example of a shortage is limited amounts of
a. water available for irrigating a crop because it is used for other crops.
b. labor available because the workers have other jobs.
c. food available because the trucks carrying it are on strike.
d. food available because few people want to buy it.
3. The resources used to make all goods and services are the
a.production possibilities. b.factors of production. c.production trade-offs.
d.opportunity costs.
4. Why are all goods and services scarce?
a. Some goods cost more than others.
b. All resources are scarce.
c. Some things are needs and others are wants. d.Some people want to have more goods than
others.
5. The lack of which of the following represents a scarcity?
a. orange juice because the trucks carrying it are on strike
b. enough workers to finish two jobs because there’s a limited supply of workers
c. enough workers to work at night because the pay is too low
d. grapefruit juice because very few people want to buy it
Land, Labor, or Capital?
Classify each of the examples as land labor or capital:
tree
factory
oranges wind
Land
teacher
machine
gravel truck
detective
Labor
computer water waitress
tractor
thread doctor
Capital
Opportunity Cost
Essential Questions: (p. 8-11)
1. Describe why every decision involves tradeoffs.
2. Explain the concept of opportunity cost.
3.Explain how people make decisions by thinking at the margin.
Trade-offs and Opportunity
Cost
Trade-offs are all the alternatives we give up whenever we choose one course
of action over the others.
The most desirable alternative given up as a result of a decision is known as
opportunity cost
All individuals and groups make decisions that involve trade-offs
The Decision- Making Grid
Economists encourage us to consider the benefits and costs of decisions.
PACED decision making:
1. Problem-state the PROBLEM
2. Alternatives- list the ALTERNATIVES
3. Criteria- establish CRITERIA that are important for the decision
4. Evaluate- EVALUATE each alternative to see how it meets each of the criteria
5. Decide- make a good DECISION!
Alternatives
Example:
MVCC
SUNY
Cortland
University
of Miami
Harvard
Criteria
Admission
requiremen
ts
Has course of
study
Close to home
Financial aid
PACED Decision Making
Grid
1.
is.
2.
3.
4.
5.
Before you try to decide to make a decision, identify what the problem
Choose a few alternatives to choose from.
Select criteria that you will use to make your decision
Evaluate your alternative using the criteria you selected.
Make a decision based on your evaluation of criteria
Guns or Butter
When a country decides to produce more military goods (guns) they have fewer
resources to devote to consumer goods (butter).
Example:
If you use steel to make a tank that steel is no longer available for building the
dairy equipment needed to make butter.
Thinking at the Margin
Many decisions involve adding one unit or subtracting one unit, such as one
minute or one dollar.
When you decide how much more or less to do, you are thinking at the
margin.
Making a decision at the marginWhen making a decision at the margin, you should look at the
opportunity cost.
Practice Multiple Choice
1. The government of a country must make a decision between increasing military spending
and subsidizing wheat farmers. This kind of decision is a
a. guns and butter issue b. decision at the margin c. global trade-off d. basic economic decision
2. What is the opportunity cost of a decision?
a. the series of alternative decisions that could have been made
b.the best possible way the question could have been decided
c.the different ways that a different person might have made the decision
d. the most desirable alternative given up for the decision
3.The government of a country must make a decision between spending money on a hospital
or spending the same amount on border security. What kind of decision is this?
a. guns or butter b. decision at the margin c. global trade-off
d. production efficiency decision
PACED Decision-Making
Practice
Pretend you have $500 and have to decide what to buy. Come up with 4 alternatives, and
criteria to make the decision. You will then evaluate the criteria and make a decision based on
your evaluation.
Criteria
Alternatives
Production Possibilities
Curves
Essential Questions: (p. 13-18)
1. How do production possibilities curves show efficiency, growth, and cost?
2. How does a production possibilities curve illustrate opportunity cost?
3. How are underutilization of resources and efficiency depicted on a production
possibilities curve?
4. Why are production possibilities frontiers curved lines?
Production Possibilities
A production possibilities graph shows alternative ways that an economy can
use its resources.
The production possibilities frontier is the line that shows the maximum
possible output for that economy.
Efficiency
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.
Growth
Growth- if more resources become available,or if technology improves, an
economy can increase its level of output and grow. When this happens the
production possibilities curve shifts to the right