An Introduction to Economics

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Welcome!

Happy New Year!!!

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. Included in this Power Point is information about those policies and procedures for this course.

The Course at a Glance

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

Class Rules

My three R’s:

Be Responsible – All rules in the student handbook will be enforced.

Be Respectful – Treat others the way you want to be treated.

Be Ready – Come to class with a pencil, notebook and a positive attitude.

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?

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

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…

Take out a piece of paper.

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

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.

Thinking at the Margin

Definition:

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.

Scarcity

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

There are 4 factors that must all be used to produce anything:

1. Natural Resources (also referred to as “land”)

Factors of Production

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

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

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.”

Making Economic Decisions

The most desirable of the options you pass up is called the Opportunity

Cost

Rank sleep, studying, and playing video games 1 st , 2 nd , and 3 rd on a list for what you value the most

Making Economic Decisions

1 st Place is what you would choose to do

2 nd 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

Making Economic Decisions

Opportunity Cost

Options Benefit

None 0 hours studying,

3 hours sleeping

1 hours studying,

2 hours sleeping

2 hours studying,

1 hour sleeping

F on Test

C on Test

B on Test

3 hours studying B+ on Test

1 hour of sleep

2 hours of sleep

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

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

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

To move from one point to another, the economy must make

tradeoffs

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

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

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