Fundamental Concepts of
Economics
 What is Economics?
Unit Notes, Key Terms, and Concepts
Widget Game
Divide into groups.
 The goal of each group is to produce as
many widgets as possible.
 The winning “team” is the group that
produces the most widgets.
 To make widgets, each group will receive
some combination of paper, scissors,
markers, and/or paper clips.

Widget Game Debriefing
Answer in complete sentences…
1. Describe the problem you faced while
playing the widget game?
2. From a bigger picture and in a “real-life
scenario”, what do the paper, markers,
scissors, and paper clips represent?
3. What action(s) did you take in order to
compensate for the problem you faced?
4. How does this action simulate “reallife”?
Today’s Learning Goals
SSEF1 The student will explain why limited
productive resources and unlimited wants
result in scarcity, opportunity costs, and
tradeoffs for individuals, businesses, and
governments.
 a. Define scarcity as a basic condition that exists
when unlimited wants exceed limited productive
resources.
 b. Define and give examples of productive
resources (factors of production) (e.g., land
(natural), labor (human), capital (capital goods),
entrepreneurship).

Overview

ECONOMICS is the study of how people
seek to meet their needs and wants by making
choices.
◦ Micro – deals with small units like individuals
and businesses
◦ Macro – deals with entire economies
The Basic Economic Problem
•
SCARCITY =
the condition that exists when unlimited wants exceed
limited productive resources.
◦ needs & wants are greater than resources
which are both limited and desirable
◦ not temporary/always exist
◦ result = choices must be made
Scarcity
Think about it…
So, since we know scarcity is a problem, how
does it impact our ability to be productive as
individuals?
Tell me what YOU think…
(Hint: what items are scarce?)
Productive Resources

Are those scarce items necessary to produce
goods and services

Four Categories of Productive Resources
◦
◦
◦
◦
Land (natural)
Labor (human)
Capital (goods)  Physical and Human
Entrepreneurship
Brainstorming Activity – Identify 5
examples of each
Land
Labor
Capital
Entrepreneurship
Factors of Production Activity
Factors of Production
Land
Capital
Labor
Entrepreneurship
Identify a scenario in which an entrepreneur is using
various factors of production to run his/her business
(make-up a business). Identify necessary resources and
identify which category each resource falls.
Resource Allocation







Supply and Demand – based on who can
afford the resource – use of prices
Authority – a group/person in power decides
Random Selection – lottery – gives
everyone the same chance
First Come, First Served
Personal Characteristic
Contest
Need
Key Questions

1) What to produce?

2) How to produce?

3) For whom to produce?
Opportunity Cost

Defined: value of the next best alternative given up when
making a choice.
◦ Choice causes you to give up one option in order to
gain the benefits of another.
◦ There is no such thing as a free lunch!!!!
Trade-offs are ALL possible alternatives, while
OC is only the next best alternative.
Production Possibilities
Answers Question: What to produce?

Defined: relationship between two possible
alternatives when using ALL available
resources.
◦ can be graphed in a PPC curve to illustrate
◦ The two alternatives are
INTERDEPENDENT with one another.
Production Possibilities:
What to produce?
Production Possibilities
60
A
50
Production Possibilities
40
Y Axis – Choice #1
X Axis – Choice #2
30
B
20
As the production of Choice
2 increases, what happens
to the production of Choice
1?
C
10
0
0
5
10
Production Possibilities

Production Possibility Frontier
◦ all the possibilities of production along the
curve

Underutilization
◦ occurs inside the curve – meaning you are
not using all available resources
Production Possibilities Frontier
(PPF)
Is Point C
attainable?
Is Point D
attainable?
Make Your Own Example…

Create your own situation where you are
weighing the opportunity costs between
two choices…
1. Construct a PP Table
2. Use your table to construct a PPC
Marginal Cost (MC) vs. Marginal
Benefit (MB)

MC defined - the COST of procuring one
more item

MB defined - the BENEFIT associated with
gaining that one additional item

Marginal Analysis - Occurs when weighing
the MC of an option in comparison to the
MB
◦ Rational Decision = MB > MC
Marginal Analysis
Y
Z
X
Marginal Analysis
Y
Z
X
Where do my Marginal
Benefits outweigh my
Marginal Costs?
Where do my Marginal
Costs outweigh my Marginal
Benefits?
If we are thinking rationally,
at what point would I want
to pursue further education?
Thinking at the Margin

Economists look at the “additional” unit
of cost compared to each “additional”
unit of benefit
◦ Known as “thinking at the margin” and assumes
rational behavior
◦ PROFIT Maximization  MC = MB (Point Z on
sample graph
Example of MC & MB

EX. Think about pizza –
o
You are willing to pay the price charged for a slice as
long as you are hungry…
o
What will happen to your Marginal Benefit as you
become more and more full?
o
as you get full, you will no longer be willing to pay for
a slice because MC exceeds MB
Voluntary/Non-Fraudulent Exchange

Given: Productive resources are scarce
and not distributed evenly throughout the
world.
◦ How do individuals/nations acquire the resources
they need to meet their production needs?
VOLUNTARY TRADE/EXCHANGE!!!!
Typical Results from Trade

What happens when goods or services
are voluntarily exchanged between
nations, businesses, or individuals?
◦ Both parties benefit…Why?


They are both able to consume more than before
trade
Satisfaction of both increases
Use of Resources

How do nations decide what to produce?

How do they decide how to produce?

How do they decide for whom to
produce?
General Goals of Economic Systems
1.
Economic Freedom
2.
Economic Equity
3.
Economic Security
4.
Economic Growth
5.
Economic Efficiency
Types of Economies: Market

Characterized by:
◦ Private ownership – people can start their own
businesses  accumulate wealth
◦ Profit motive – incentive for entrepreneurs to
start businesses  keep $ they make
◦ Consumer sovereignty – consumers drive the
market  bad products = failure
◦ Competition – creates efficiency & keeps costs
low  government protects competition

Adam Smith  laissez faire (hands off)
◦ Government stays out
◦ The Wealth of Nations (1776)
Types of Economies: Command

Characterized by Government Regulation
◦ Control Economic Activity






Taxes
Redistribution of wealth – Rich Poor
Setting prices & wages
Issuing worker and product safety guidelines
Setting output quota
Government monopoly
◦ Karl Marx/Frederich Engels
 Communist Manifesto- (1848)
 Ideas led to the Bolshevik (Russian) Revolution
Making Comparisons
MARKET
COMMAND
MIXED
Types of Economies: Mixed
Most (if not all) have characteristics of
both
 Some lean more toward a free-market
(capitalism) while others lean more
toward command – mostly seen as
socialism

◦ Why do you think most economies are
mixed?
◦ Can you identify examples of the free market
and socialism in America?
Government Involvement in the
Economy

Why do they get involved?

What are the benefits?

What are the costs?
Name That Regulatory Agency Race
What do initials stand for? What do they do?
 ICC
 NLRB
 FDA
 FDIC
 FCC
 FAA
 EPA
 OSHA
 NRC
U.S. Example of Costs
Government Regulation

Regulation – the government restricts
producers in the free market to:
◦ Promote the safety of consumers
 ex. EPA (Environment Protection Agency) limits the
amount of pollution produced
◦ Protect consumers economically
 ex. Federal Reserve regulates the banking industry
Deregulation

Occurs when the government ceases to
regulate (control) industry to
◦ Promote competition among producers in the
open market
◦ Benefit consumers through more choices &
lower prices
 ex. GA Public Commission deregulated natural
gas
Increasing Productivity

Increasing INPUTS = increased OUTPUTS
◦ The opposite is also true

Inputs are factors of production
◦ Land, Labor, Capital, Entrepreneurship
 ex. Technology, interstate highways, improved
education
Results of Changing Resources

An increase in productive resources can
shift the Production Possibilities to the
right or upward

A decrease in productive resources can
shift the curve to the left or downward
Increased Resources = Increased
Output
Increase in resources that impact
one good more than the other…
“A” pnow
attainable
A
Loss of resources that impact both
goods…
Point A
no longer
attainable
A
Loss of a resource impacts one
good more than the other…
A
Point A no
longer
attainable