What is Economics?
“Scarcity and Factors of
Production”
Chapter 1.1
Choices and Decision Making:
• The study of economic begins with the idea
that people cannot have everything the need
and want.
• Need: Anything that is necessary for survival.
(food, shelter…etc.)
• Want: Something we desire, but is not
essential to our survival.
(xbox, ipod,…etc.)
What is Economics?
• Economics: The study of how people satisfy
their wants and needs by making choices.
• People must make choices due to scarcity.
• Scarcity: limited quantities of resources, and
unlimited wants. (think of oil)
-no matter what it is, sooner or later a limit is
always reached.
-scarcity always exist because our needs and
wants are always greater then our supply.
Scarcity vs. Shortage:
• Shortages: Shortages occur when producers
will not or cannot offer goods and services at
current prices.
• Shortages can be temporary or long-term
(unlike scarcity, which always exists.)
Goods and Services:
• Many Americans find it difficult to understand
the idea of scarcity, because when they look
around they see goods and services all around
them.
• Good: a physical object. (shoes, shirt)
• Service: actions or activities that one person
performs for another. (haircut, tutoring)
Factors of Production:
• These are the resources that are used to
produce goods and services.
• Land- all natural resources.
• Labor- Task completed by a person who is
paid.
• Capital- any human made resource that is
used to produce other goods and services.
There are 2 different types of capital.
• Physical capital: human made objects used to
create goods and services. (Tools)
• Human capital: Knowledge and skills a worker
gains through education and experience.
(lawyer = education, McDonald’s worker =
experience or job training)
Entrepreneurs:
• Entrepreneurs: These are the people who pull
resources together in order to create goods and
services.
• Ambitious leaders, usually risk takers, who decide
exactly how to combine land, labor, and capital
resources to create new goods and services.
• Develop original ideas, start businesses, and
create new industries.
• Most importantly, entrepreneurs fuel economic
growth.
Entrepreneur Assignment:
1. Tell me what business you are going to start,
and why you decided on starting that
business.
2. Need or Want?
3. Good or Service?
4. Human and Physical Capital?
Warm Up
September 13
Describe and explain the three factors of
production
Bell Work:
• If you hadn’t come to school today, what
would you be doing instead?
• What do they (economists) call this concept?
Opportunity Cost:
1.2
Trade-Offs:
• Every decision we make in life involves choosing one
thing, while giving up another.
• Trade-offs: Trade-offs are all of the alternatives we give
up when we choose one thing over another.
• You may choose to sleep late in the morning.
• By doing so, your trade-offs may be:
• eating breakfast , studying for a test, reading the
newspaper
• All decisions involve trade-offs because resources are
limited.
Who Makes Trade-Offs?:
• Individuals- more time at work, less time for
hobbies.
Businesses• Businessesmust make decisions on how to
must
make
use land,
decisions
on labor, and capital.
• Society
how
to use (Countries)- if a country invest more
money in one thing, it has less money to
spend on another. (guns or butter decision)
Opportunity Cost:
• Opportunity Cost: The most desirable thing
given up in a decision.
• Sometimes making a decision is difficult
because opportunity cost may be unclear or
complicated. (Decision Making Grid)
Decision Making Grid
Alternatives:
Sleep Late
Benefits:
Decision:
•Enjoy more sleep
•Have more energy
during the day
Sleep Late
Wake Up Early to Study
•Better grade on test.
•Teacher and parental
approval.
•Personal satisfaction
Wake up early to study for
test,
Opportunity Cost:
•Extra study time.
•Extra sleep time.
Benefits Lost:
•Better grade on test
•Teacher/parental
approval.
•Personal satisfaction
•Enjoy more sleep.
•Have more energy during the
day
Thinking at the Margin:
• Thinking at the Margin: When you decide
how much more or less to do, you are thinking
at the margin.
(Decision: study 1, 2, or 3 hours extra for a test.)
Making a Decision at the Margin:
• Making a decision at the Margin: When you
look at the opportunity cost and the benefit of
a decision, you are making a decision at the
margin. (Decision: Study 1, 2, or 3 hours extra
for test.)
• Opportunity Cost: Less time to spend with
friends.
• Benefit: Passing the test
Bell Work:
• 1. What does the “Guns and Butter Decision”
refer to ?
• 2. What is the difference between trade-offs
and opportunity cost?
• 3. What is the difference between scarcity and
a shortage?
Production Possibilities Graph:
• Economist often use graphs to analyze the
choices and trade-offs that people make
• Why? Because graphs show us how one value
relates to another.
• Production possibility graph: Shows the
alternative ways to use an economy’s
resources
10_
5_
Shoes
30_
25_
20_
15_
Shirts
30_
25_
20_
15_
10_
5_
30_
- Currently
Unachievable
20_
15_
- Underutilization
10_
Shoes
30_
25_
20_
15_
10_
5_
5_
Shirts
25_
What the Graph Shows:
• 1. Efficiency- using resources in such a way as
to maximize the production or output of
goods and services.
• 2. Growth-Increases in technology will cause
output to increase.
• 3. Cost-The opportunity cost of producing one
good over another.
Law of Increasing Cost:
• Law of increasing cost: As production
switches from one item to another, more and
more resources are necessary to increase
production of the second item.