Economics
El Dorado High School
Spring, 2015
Mr. Ruiz
Economics
Chapter One
What is Economics?
1.
2.
3.
Section One: Scarcity and the Factors of
Production
Section Two: Opportunity Cost
Section Three: Production Possibilities
Curve
Key Terms to Remember throughout
This Chapter
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Economics
Needs
Wants
Scarcity
Shortage
Goods
Services
Factors of Production
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Land
Labor
Capital
▪ Human Capital
▪ Physical Capital
 Entrepreneur
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Trade-off
Guns or Butter
Opportunity Cost
Thinking at the Margin
Production Possibilities Curve (PPC)
Production Possibilities Frontier
Efficiency
Underutilization
Cost
Law of Increasing Costs
Section 1:
What is Economics?
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Economics is the study of how
people seek to satisfy their needs
and wants by making choices.
Needs vs. Wants:
1.
Needs: Things that are necessary for
survival. (Water, air, food, shelter)
2.
Wants: Things not essential for
survival. (IPod, TV, cell phone, Xbox,
etc..)
The Economic Perspective
(The economic way of thinking)
 Scarcity and
Choice:
 Human/property resources are
scarce.
 Goods and services we produce
must also be limited, “We can’t
have it all.”
 We must decide what we will
have and what we must forgo.
 The economic axiom, “ There is
no free lunch.”
Scarcity vs. Shortage
 Scarcity: There are limited
 Scarcity vs. Shortage
quantities of resources to meet
unlimited wants.
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Shortage occurs when production of
goods/services will not or cannot be
provided at the same price; can be
temporary or long term.
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On the other hand, scarcity exist when
needs/wants exceed the resource
supply.
Limited quantities vs. Unlimited wants
 All the goods (physical objects)
and services ( actions or activities
performed) that are produced are
scarce.
Factors of Production:
The (3) groups of resources used to make all goods and services
(aka, Factor resources)
1.
Land
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Natural resources (water, forests, coal,
etc..)
2.
Labor
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Efforts devoted by people to a task for
compensation (payment)
3.
Capital
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Human made resources used to
produce other goods/services
 (2) categories:
 Physical capital: Buildings,
tools, & machinery
 Human capital: Knowledge &
skills gained through education
& experience
Entrepreneurs
 Entrepreneur: Ambitious individuals willing to
combine the factors of production (land, labor, &
capital) to create new goods and services
Section 2:
Opportunity Cost
 Opportunity cost: The most
desirable alternative given up
as a result of a decision.
 Example: Buying new shoes instead of
going to the movies and dinner. The
opportunity cost is the movies/dinner.
 Guns or Butter: Concept that
explains the trade-offs countries may
face. ( A country that decides to apply
its resources for more military goods
(guns) will sacrifice its resources
devoted to consumer goods (butter)
and vice versa.
Retrieved from: http://www.investopedia.com/terms/g/gunsandbutter.asp
Trade-Offs & Thinking at the Margin
 Trade-Offs:
 Thinking at the Margin:
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The alternatives that we give up
whenever we choose one course of action
over another.
Example: If you spend more time at
work, you give up spending time with
your friends and/or going to see a movie.
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Deciding and whether to do or use one
additional unit of some resource
Good example provided (Figure 1.3, pg.
11) :
One hour extra study time =C
Two hours extra study time =B
Three hours extra study time=A
Production Possibilities Curve
 Production Possibilities Curve
(Graph) PPC:
 Basically, shows alternative ways to make
use of an economy’s resources; it help
relate, (compare) the value of one thing
from the value of another.
 An example of PPC with point A
reflecting the area that is unattainable.
 The blue line on the graph displaying the
possible combinations is know as the
Production Possibilities Frontier.
Efficiency, Growth, and Cost
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The PPC graph may point
out vital information
regarding the status of any
given economy:
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It can identify if the efficiency of
an economy’s resources are being
maximized in the production of
goods and services or recognize
an economy’s underutilization of
resources ( i.e., any point inside
the frontier line).
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It can also identify unattainable
production as a result of limited
resources
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It can recognize economic growth
by an entire shift to the right of
the PPC
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It can help illustrate the cost (not
in money, but in opportunity
cost) of the decisions made with
regards to the use of resources.
Rational behavior in a world ruled by scarce resources and opportunities?
“It doesn’t have to end like this!”