Intro Question– How does economics affect everyone? Pair/Share Get with a partner and share your ideas. You will be sharing your partner’s ideas to the class. How does economics affect everyone? Something to Think About! How many people touched your shirt before it came to be yours? How does your money affect the world? How can you vote with your dollar? So how does it? Our resources are limited. But our needs and wants are unlimited. Which leads to difficult decisions about efficiency and necessity. Economics is about freedom. You can do what you want with your money. The markets respond to the dollars spent. But to do what you want, you have to have the money. What is scarcity? The constant condition in which only limited amounts of goods and services are available to meet unlimited wants and needs. What Money? Time? Love? Donuts? What is there not enough of in your life? about time to create lasting friendships. The Sims Think about it. How do you make the correct decision? How do you know which is more important? How does scarcity force people to make economic decisions? Wants Wants vs. Needs Needs Arrange the following items in their respective positions: Flowers, Water, Car, In-N-Out, Gasoline, Coffee, Clothes Wants and Needs Why Did Are did the items land where they did? any items fall in both categories? all wants and needs the same for all people? Question: How do all decisions in your life and in the world somehow involve trade-offs? Share your thoughts on the question. You will be sharing your partners ideas to the class. Opportunity Costs Chapter 1 Section 2 Trade-Offs Guns or Butter? Government Dilemma Spend on Military needs or domestic needs. Why is the government faced with these tough decisions? Scarcity. Opportunity Costs! The most valuable thing you are forced to give up in order to carry out a decision is your opportunity cost. When you stay up late at night to study, what is your opportunity cost? What do you gain from studying more? What do you lose? What about the opposite scenario? The Cost of College Year Direct Costs of College 1 $20,000 Opportunity Costs (Lost Wages) $16,000 2 $20,500 $16,500 3 $21,000 $17,000 4 $21,500 $17,500 Total $83,000 $67,000 The Total Cost of College College Costs + Opportunity Costs = $83,000 + $67,000 = $150,000 Economic Mystery "When it takes, at least, an additional seven years of schooling, and over one hundred thousand dollars in costs and lost earnings, why would a person want to graduate from college instead of dropping out after the ninth grade?" Pillows can cost you! How were keeping extra decorative pillows benefitting Ben Stiller? What were the costs of keeping those pillows and preparing them daily? Is the value of the pillows worth more than the upkeep cost? Time can be an opportunity cost. Marginal Analysis Taking the time to analyze how each aspect of a decision, when changed, affects the final outcome of the decision. Study or Sleep How each hour helps your grade improve vs. how each hour of lost sleep affects your mood. Marginal Analysis – Sleep or Study? Options Marginal Benefit Marginal Cost 1st hour of extra study time Grade of C on test 1 hour of sleep 2nd hour of extra study time Grade of B on test 3rd hour of extra study time Grade of A on test 3 hours of sleep 2 hours of sleep Marginal Analysis – Food! Combo Burger and Fries - $10 Combo Is #1 #2 Burger, Fries, and a Milkshake - $13 the milkshake worth the extra $3? This is thinking at the margin. What is the opportunity cost of that $3? The Next Step: Business! In order to create a successful business, an entrepreneur must be a quality marginal analyst. Use Resources Wisely Combine the factors of production to create new products or services. Factors of Production – All resources combined Scarcity – Not everyone can be successful Competition – Not everyone can be good enough Efficiency – May the most efficient win! LAND, LABOR, and CAPITAL Factors of Production - Land For economists, land is more than dirt! Land – All natural resources found on or under the ground that are used to make products/services. Water, Forest, Fish, Iron, Coal, Plants Why wouldn’t a parking lot be considered a land factor of production? Factors of Production - Labor Labor is more than elbow grease! Labor – All of the human time, effort, and talent used to product goods/services. Garbage Collectors, Mechanics, Surgeons, Police, etc. Factors of Production - Capital Capital is more than just money! Capital – Resources used/made by people and kept for use in producing and distributing goods and services. Physical vs. Human Capital Tools, machinery, factories, offices, cell phones, roads, airports, etc = Physical Capital Factors of Production - Capital Human Capital – A person’s knowledge or skills used to help create goods/services. Human capital is the key to quality entrepreneurial work. Land or Capital – Quick Test! Ice at Mount Everest Ice in a skiing field Sea water Sea water in a seafood restaurant Sharks in the Atlantic Ocean Sharks at Sea World Exit Question What do you believe has the potential to be a large economic success in the future in regards to business opportunities? Think of the field/item/service that will be a great opportunity.