Welcome to Economics!
“TINSTAAFL”
Standard 1: Students understand common economic
terms, concepts, and economic reasoning and make
connections to their daily lives.
Scarcity and the
Science of Economics
Objective: Examine the causal relationship between scarcity
and the need for choices.
Scarcity: Needs vs. Wants

“It is but a very small part of man’s wants
which the produce of his own labour can
supply. He supplies the far greater part
of them by exchanging that surplus part
of the produce of his own labour, which
is over and above his own consumption,
for such parts of the produce of other
men’s labour as he has occasion for.
Every man thus lives by exchanging, or
becomes in some measure a merchant,
and society itself grows to be what is
properly a commercial society.” Adam
Smith

Economics is the study of how people try to
satisfy seemingly unlimited and competing
wants through the careful use of relatively
scarce resources.

Scarcity is the condition that results from
society not having enough resources to
produce all the things people would like to
have.

A need is a basic requirement for survival,
such as food, clothing and shelter.

A want is simply something we would like to
have but is not necessary for survival.
 “The gap in our economy is
between what we have and what
we think we ought to have - and
that is a moral problem, not an
economic one.” Paul Heynes
Economic YAHOO
You always have other options!

Unlimited Wants + Limited
Resources = Scarcity

Because there is scarcity, we
must make choices.

These choices drive economic
change.
WHAT to
produce?
FOR
WHOM to
Produce?
HOW to
produce?
The Factors of Production
• Includes “gifts of nature” not
created by human effort.
• Since natural resources are
finite, land is said to be fixed
or in limited supply.
• Includes the tools,
equipment, and factories
used in production.
• Capital drives production
and innovation.
LAND
ENTREPRENEURS
• Includes individuals who
start a new business or bring
a product to market.
• Entrepreneurs do something
new with existing resources;
they take risks in search of
profits and drive economic
change.
CAPITAL
LABOR
• Includes people with all their
efforts, abilities and skills.
• Factors such as birthrates,
immigration, famine, war,
and disease have had a
dramatic impact on the
quantity and quality of labor.
The Scope of Economics

http://www.glencoe.com/video_library/index_with_mo
ds.php?PROGRAM=9780078747649&VIDEO=4756
&CHAPTER=1&MODE=2

Gross Domestic Product (GDP) is the dollar value of
all final goods, services, and structures produced
within a country’s borders within a 12-month period.

http://glencoe.com/sites/common_assets/advanced_
placement/mcconnell_18e/solman_video_mov/ration
al_max.mov

The Bureau of Economic Analysis provides data for
the GDP. The BEA is part of the US Department of
Commerce. http://www.bea.gov/

Like other sciences, economics uses an inquiry
process that is similar to the scientific method.
Economists use their skills to describe economic
activities, analyze trends, communicate their ideas
and make predictions about what will happen in the
future.

How does the GDP of the United States compare to
other countries around the world?

http://www.npr.org/2012/01/24/145521090/for-chinasleft-behind-kids-a-free-lunch

“Economists are pessimists. They have
predicted eight of the last three depressions.”
Barry Asmus
Economic Choices and
Decision Making
Objective: Explain opportunity cost, marginal benefit and
marginal cost.
Basic Economic Concepts

Goods: Useful, tangible items. Capital goods are used to produce other goods and services.
Consumer goods are intended for final use by individuals. Durable goods last more than three
years; nondurable goods last less than three years.

Services: Work performed for someone.

Consumers: People who used goods and services to satisfy their wants and needs.

Value: A worth that can be expressed in dollars and cents. The paradox of value is that sometimes
nonessential items have high value while essential items have low value. For something to have
monetary value, it must be scarce and have utility.

Utility: The capacity to be useful and provide satisfaction.

Wealth: The accumulation of products that are tangible, scarce, useful and transferable from one
person to another.

Factor Market: Mechanism by which the factors of production are bought and sold. Examples of
factor markets include the labor market, the real estate market, and the banking market.

Product Markets: Mechanism by which producers sell their goods and services.

http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p15.swf
Productivity and Economic Growth

Economic growth occurs when a nations total
output of goods and services increases over time.

Productivity measures the amount of output
produced with a given amount of productive factors—
productivity goes up when more can be produced
with the same amount of resources.

Everyone in a society benefits when productivity
increases and scarce resources are used more
efficiently.

One way to boost productivity is to invest in human
capital—the sum of people’s skills, abilities, health,
knowledge and motivation.

Both governments and businesses can invest in
human capital and improve economic growth.

Division of labor and specialization can also boost
productivity. For example, it is sometimes more
efficient to divide work into a number of separate
tasks to be performed by different workers. This
division of labor leads to specialization—assigning
specific tasks to the workers, factories, regions or
nations that can perform them most efficiently.

In the United States, there is a high degree of
economic interdependence. We rely on others—
and others rely on us—to provide goods and services
in a global market.
Efficiency is doing
things right;
effectiveness is doing
the right thing.
COMPARATIVE ADVANTAGE
OF JUSTICE!!!! (GAME)
 Follow the link on my wiki to get to the game. Each
student is assigned a code and password.
 Complete the pre-test. Please take the time to read the
questions even if you do not know the answers. You
need to know what you don’t know!
 Read each screen, watch the videos and answer the
questions. You should take Cornell notes as needed.
Remember, you can use your Cornell notes on quizzes!
 Take the post test! How did it go?
Trade-Offs and Opportunity Cost

Every decision has its trade-offs, or
alternative choices. Decisions are not
usually based entirely on one factor.

Opportunity cost is the cost of the next
best alternative use of money, time, or
resources when making a choice.


A decision making grid lists alternatives
and criteria to help evaluate choices.

A production possibilities frontier shows
the different combinations of two products
that can be produced if all resources are
fully employed.
The Production Possibility
Frontier/Curve/Graph
http://glencoe.com/sites/common_assets/advanced_placement/mcconnell_18e/solman_video_mov/prod_poss_curve1.mov
Identifying Possible
Alternatives
Fully Employed
Resources
 Identifying Possible
Alternatives
The Cost of Idol
Resources
Opportunity Cost
Economic Growth
Cost-Benefit Analysis

An economic model is a simplifies version of a
complex concept or behavior expressed in the form
of an equation, graph or illustration.

Few choices are all-or-nothing decisions; they usually
involve getting a little more of one thing by giving up
a little of something else.

Models are based on assumptions, or ideas
economists believe are true. Models with more
assumptions are easier to understand, but they are
usually less accurate.

A cost is what you give up when you decide to do
something; a benefit is what satisfies your wants.

To determine the best level of consumption of a
product, people must compare the additional benefits
with the additional costs of consuming a little more or
a little less.

Marginal benefit is the change in total benefit
resulting from an action. Marginal cost is the change
in total cost resulting from an action.

As long as the marginal benefit of an activity exceeds
the marginal cost, people are better off doing more of
it; when the marginal cost exceeds the marginal
benefit, they are better off doing less of it.

To produce the profit-maximizing level of output and
hire the optimal number of workers, and other
resources, producers must compare the marginal
benefits and marginal costs of producing a little more
with the marginal benefits and marginal costs of
producing a little less.

To determine the optimal level of a public policy
program, voters and government officials must
compare the marginal benefits and marginal costs of
providing a little more of a little less of the program's
services.

A cost-benefit analysis is a way of thinking about
choices that compares the cost of an action to its
benefit.

Incentives for Change
Objective: Identify the difference between monetary and nonmonetary incentives and how changes in incentives cause
changes in behavior.
Monetary and Non-monetary
Incentives: Love vs. Money

Rewards are positive incentives that
make people better off; penalties are
negative incentives that make
people worse off.

Both positive and negative
incentives affect people's choices
and behavior.

People's views of rewards and
penalties differ because people have
different values. Therefore, an
incentive can influence different
individuals in different ways.

Responses to incentives are
predictable because people usually
pursue their self-interest; changes in
incentives cause people to change
their behavior in predictable ways.

Incentives can be monetary or nonmonetary.

Acting as consumers, producers,
workers, savers, investors, and
citizens, people respond to
incentives in order to allocate their
scarce resources in ways that
provide the highest possible returns
to them.

Small and large firms, labor unions
and educational, and other not-forprofit organizations have different
goals and face different rules and
constraints. These goals, rules, and
constraints influence the benefits
and costs of those who work with or
for those organizations, and,
therefore, their behavior.

http://abclocal.go.com/ktrk/story?sec
tion=news/consumer&id=8100640

http://www.ted.com/talks/dan_pink_o
n_motivation.html
Private Property and
Environmental Conservation
Objective: Evaluate the role of private property as an
incentive in conserving and improving scarce resources,
including renewable and nonrenewable natural resources.
Dr. Seuss Day: The Lorax
 http://www.ted.com/talks/rob_har
mon_how_the_market_can_keep
_streams_flowing.html
 http://www.ted.com/talks/pavan_s
ukhdev_what_s_the_price_of_nat
ure.html
 http://rockcenter.msnbc.msn.com/
_news/2012/01/02/9891968-oneve-of-caucus-a-different-boomin-iowa-real-estate-prices-soarfor-farmland
 What is private private property?
 What are property rights?
 How could private property
encourage the conservation of
scarce resources?
 How could private property
discourage the conservation of
scarce resources?
 What if the resources were
renewable?
 What if the resources were
nonrenewable?
 What about water rights?
 What about farming?
Economic Systems
Objective: Compare and contrast the impact of command, market, and
mixed economies on political and personal liberty and national and
individual prosperity. Example: Through the works of Adam Smith
Major Economic Systems

Traditional Economies

Market Economies

A traditional economy is an economic system in which the
allocation of scarce resources and other economic
activities are based on ritual, habit or custom.

A market economy is an economic system in which supply,
demand, and the price system help people make economic
decisions and allocate resources.

This system is stable and predictable; there are clear
economic roles for each member of society and a social
safety net that allows for continuation of a way of life.

A free enterprise economy is a market economy in which
privately owned businesses have the freedom to operate
for a profit with limited government intervention.

Stagnation and lack of progress can be a problem. New
ideas and new ways of doing things are discouraged,
which often leads to a lower standard of living.


Command Economies
The main draw of a market economy is that there tends to
be an incredible variety of goods and services and a high
degree of consumer satisfaction. Decentralized decision
making and lack of government interference means there
is a high degree of individual freedom.

A command economy is an economic system with a
central authority that makes the major economic decisions.

In a true market economy, workers and businesses face
uncertainty as a result of competition and change; there is
no social safety net and no public services, such as
defense, education or health care.

Because a central authority dictates what to produce and
how to produce it, the market is capable of dramatic
change in a short time. Basic public services, such as
education, are often available at little or no cost.

Mixed Economies

A mixed economy is an economic system that has some
combination of traditional, command, and market
economies.

http://glencoe.com/sites/common_assets/socialstudies/in_
motion_08/epp/EPP_p40.swf


This system requires a large and expensive bureaucracy
and lacks room for individual initiative. Workers tend to be
unmotivated, there is little flexibility in how things get done,
and it usually does not meet the needs and wants of
consumers.
American Free Enterprise

Major World Economic Systems

Characteristics of Free Enterprise Capitalism

Capitalism: economic system in which private
citizens own and use the factors of production in
order to generate profits.

While capitalism stands for the private ownership
of resources, free enterprise is the unhindered
use of privately owned resources to earn profits.

Socialism: economic and political system in
which the government owns and controls some
factors of production.

Economic Freedom applies to both consumers
and producers. Individuals are free to make
choices for themselves and their families; likewise,
businesses are free to success or failure.

Communism: economic and political system in
which all factors of production are collectively
owned and controlled by the state.

Voluntary Exchange occurs when buyers and
sellers freely and willingly engage in market
transactions.

Private Property Rights are a fundamental
feature of capitalism and allow individuals to own
and control their possessions as they wish.
Private property gives people the incentive to
work, save and invest.

Profit Motive acts as an incentive that
encourages people and organizations to improve
their financial and material well-being.

Competition is the struggle among sellers to
attract consumers. It is not possible to have
competition without economic freedom!

Economic and Social Goals

Typically, Americans value economic freedom,
economic efficiency, economic equity, economic
security, full employment, price stability, and
economic growth.

All economic policies have opportunity costs!
How might a politician use a cost-benefit analysis
to develop public policy?

http://www.glencoe.com/video_library/index_with_mods.php?PROGRA
M=9780078747649&VIDEO=4757&CHAPTER=2&MODE=2

http://www.glencoe.com/video_library/index_with_mods.php?PROGRA
M=9780078747649&VIDEO=4758&CHAPTER=3&MODE=2
Adam Smith: The Wealth of Nations
(THE INVISIBLE HAND)

In 1776, Adam Smith published An Inquiry
into the Nature and Causes of the Wealth of
Nations. This book provides the basis for
modern economic thought.

The economic system at the time was
mercantilism. Wealth was measured in
terms of gold and silver. Exports were
encouraged and imports were discouraged.

Smith argued that free trade benefitted
everyone in society—the wealth of a nation
is the total of its production and commerce
and not the amount of gold in the bank!

The “invisible hand” of the market would lead
to social stability as buyers and sellers
gained the freedom to make their own
decisions.

He spoke out against regulation, encouraged
the division of labor and the accumulation of
capital, and promoted free trade and
competition. He argued that the market
would self-correct if the government did not
interfere.

http://www.pbs.org/newshour/bb/business/jul
y-dec11/makingsense_11-18.html