Welcome!
Happy New Year!!!
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This is a time of new beginnings with so
many exciting things to do and learn. So
Welcome to Economics class! I am
looking forward to a happy and productive
semester.
I will be following the policies and
procedures Mountain View has
established.
The Course at a Glance
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The five units we will be covering include:
Unit 1 – Foundations of Economics, Trade,
and Systems
Unit 2 – Microeconomics
Unit 3 – Money and Monetary Policy
Unit 4 – Measurement and Fiscal
Unit 5 – Personal Finance and Investing
Unit 1: Foundations of
Economics
What is Economics?
 “A
science that deals with the
allocation, or use, of scarce
resources for the purpose of
fulfilling society’s needs and wants.”
– Addison-Wesley
 The study of how people seek to
satisfy their needs and wants by
making choices.
What is Economics?
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The big two concepts are that:
 Resources are scarce!
 Society has unlimited needs and
wants!
Economics decides the “best” way of
providing one to the other
Scarcity
 Definition:
A
situation in which the amount
of something actually available
would not be sufficient to satisfy
the desire for it, if it were
provided free of charge.
Scarcity vs. Shortage
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Scarcity and shortage are NOT the same!
Scarcity implies limited quantities of
resources to meet unlimited wants.
Shortages occur when producers will not
or cannot offer goods or services at the
current prices.
But this is
America! Can’t
we have
whatever we
want?
Imagine…
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I know you are so excited to be here!
Write 5 things you would rather be doing
this hour.
Put a star by the one you would pick first.
This one choice is your opportunity cost
for being here.
Opportunity Costs vs.
Trade Offs
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Opportunity cost is the most desirable
alternative given up as the result of a
decision.
This is the second best choice (the best
choice is your being here)
Trade-Offs are all the alternatives given
up as the result of a decision.
Scarcity
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Economists say that all goods and services
are scarce because the factors of
production are scarce.
What are the factors of production???
Factors of Production
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There are 4 factors that must all be
used to produce anything:
 1. Natural Resources (also referred
to as “land”)
Factors of Production
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There are 4 factors that must all be
used to produce anything:
 2. Labor – effort of a person for
which they are paid
Factors of Production
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There are 4 factors that must all be
used to produce anything:
 3. Capital – human-made
resources used to create other
goods
Factors of Production
3
Kinds of Capital
Physical Capital – Also called
Capital Goods, objects that are
used to produce other goods
Factors of Production
3
Kinds of Capital
Human Capital – knowledge or
skills workers get from education
and experience
Factors of Production
3
Kinds of Capital
Financial Capital – money needed
to begin production of a good or
service
Factors of Production
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There are 4 factors that must all be
used to produce anything
 4. Entrepreneurship – person who
takes a risk in combining the other
3 factors to create a new good
Making Economic Decisions
 Every
decision we make involves
trade-offs – alternatives that we
must give up when we make a
choice
 Example
– “I could stay up for 3
hours playing Halo, study, or
sleep.”
But…
Does it have to be all or
nothing?
Thinking at the Margin
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Definition:
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Deciding whether to do or use ONE
ADDITIONAL unit of some resource.
Examples:
Every bite of a meal is a choice for someone who
is dieting.
 Smoking will cause cancer!
 Studying for a better grade.
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Making Economic Decisions
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The most desirable of the options you
pass up is called the Opportunity
Cost
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Rank sleep, studying, and playing
video games 1st, 2nd, and 3rd on a list
for what you value the most
Making Economic Decisions
 1st
Place is what
you would
choose to do
 2nd Place is your
opportunity cost
(you give it up
to do option 1)
Making Economic Decisions
What other option do you have other
than using 3 hours for one task?
 You could split your time among
multiple activities!
 Thinking at the Margin – decision
involving adding one unit and
subtracting one unit, rather than all
or nothing
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Making Economic Decisions
Opportunity Cost
Options
Benefit
0 hours studying,
3 hours sleeping
F on Test
None
1 hours studying,
2 hours sleeping
C on Test
1 hour of sleep
2 hours studying,
1 hour sleeping
B on Test
2 hours of sleep
3 hours studying
B+ on Test
3 hours of sleep
Making Economic Decisions
There is a point at which you are
paying the same increase in cost, but
seeing lower benefits
 You must make the decision as to
whether the cost is worth it
 This same process is used by
businesses and consumers to make
decisions
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Production Possibilities
 Production
Possibilities Graph –
shows alternatives to what an
economy can produce
 Let’s say we can produce 2
things: Guns and Butter
Production Possibilities
Production Possibilities
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Production Possibilities Graph –
shows alternatives to what an
economy can produce
 The outer red line shows the
maximum possible output with any
given combination
 This is the Production Possibilities
Frontier
Production Possibilities
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To move from one
point to another,
the economy must
make decisions
The opportunity
cost of making
butter means
making less guns
Production Possibilities
Any point along the line shows the
economy operating at maximum
efficiency
 Any point below the line is
underutilization – they are not getting
all that they could
 Any point above the line is presently
impossible, until new resources are
available
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Production Possibilities
 Why
does the graph curve instead
of making a straight line?
 Law of Increasing Costs – as
production increases for one
item, amount needed as
tradeoff increases as well
Production Possibilities
 Every
resource is best suited for
certain types of goods
 Farmland
and cows make butter
 Metals and factories make guns
 To convert butter production to
guns, you must sell the cows and
build new factories on the land
OBJECTIVES 1.1
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EXPLAIN why scarcity and choice are basic
problems of economics
IDENTIFY land, labor, and capital as the
three factors of production, and identify
the two types of capital
EXPLAIN the role of entrepreneurs
EXPLAIN why economists say all resources
are scarce
PROFILE – Gary Becker!
Read p. 7 about Gary
Becker’s thoughts about
the “marriage market”…
hmmm… Then discuss
with neighbor:
1. Do you agree or
disagree that economics
guides even life’s most
personal decisions???
CFU…
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1. Which of the following are factors of
production?
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a.
b.
c.
d.
Capital and Land
Scarcity and shortages
Technology and productivity
economics and business decisions
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2. Which of the following is an example of
using physical capital to save time and
money?
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a. hiring more workers to do a job?
b. building extra space in a factory to simplify
production
c. switching from oil to coal to make
production cheaper
d. lowering workers’ wages to increase
profits
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3. To what part of an industry does a
worker’s education contribute?
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a.
b.
c.
d.
technology
physical capital
human capital
scarce resources
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4. Which of the following is an
entrepreneur?
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a. a person who earns a lot of money as a
singer or dancer
b. a person who creates a game and sells it
to a game manufacturer
c. a person who starts an all-organic cleaning
supplies business that employs others
d. a person who works as a highly paid
computer programmer
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5. What is the difference between a
shortage and scarcity?
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a. A shortage can be temporary or long-term,
but scarcity always exists.
b. A shortage results from rising prices;
scarcity results from falling prices.
c. A shortage is a lack of all goods and
services; scarcity concerns a single item.
d. There is no real difference between a
shortage and scarcity
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6. What does an economist mean by the
term LAND?
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a. farmland only
b. food crops grown on farmland as well as
the farmland itself
c. goods and services that are produced form
the land
d. all natural resources used to produce
goods and services
Check your answers
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1. a. capital and land
2. b. building extra space in a factory to simplify
production
3. c. human capital
4. c. a person who starts an all-organic cleaning
supplies business that employs others
5. a. A shortage can be temporary or long-term,
but scarcity always exists!
6. d. all natural resources used to produce
goods and services!