Chapter 1 Introduction to Economics Definition Economics The

Chapter 1 - Introduction to Economics Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants Microeconomics: Branch of economics that studies decision-making by a single individual, household, firm, industry or level of government. Macroeconomics: Branch of economics that studies decision-making for the economy as a whole

Chapter 1 - Introduction to Economics Money, Power, Respect By Ms. C. Ibena-Berry Modified for East High - Period 5!

Chapter 1 - Introduction to Economics • • • Outline for the semester Materials Requirements Ticket out Song just for you…. ”Money, Power, Respect http: //www. youtube. com/watch? v=_K 4 l. ZB x. GTn. M&feature=player_detailpage

Chapter 1 - Introduction to Economics Problem of Scarcity: The condition in which human wants are forever greater than the available supply of time, goods, and resources. 3 Economic Questions What will be Produced? How will it be Produced? For whom will it be produced?

Chapter 1 - Introduction to Economics Positive vs. Normative Positive Economics: An analysis limited to statements that are verifiable Normative Economics: An analysis based on value judgment

Chapter 1 - Introduction to Economics Scarce Economic Resources Factors of Production (FOP): The resources used to create goods and services Land: Any natural resource provided by nature. Labor: The mental and physical capacity of workers to produce goods and services. Capital: Any physical man-made good used to produce other goods. Entrepreneurship: Vision, skills, and risktaking needed to create and run a business.

Chapter 1 - Introduction to Economics Opportunity Cost Trade-off: Any alternative that could be chosen Opportunity Cost: The best alternative sacrificed for a chosen alternative

Chapter 1 - Introduction to Economics Adam Smith: Scottish Economist (1723 -1790) The Invisible Hand Theory “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest

Chapter 1 - Introduction to Economics Production Possibilities Curve — Marginal Analysis 160 A Production Possibilities Curve A curve that shows the maximum combinations of two outputs that an economy can produce, given available LLC. Guns Assumptions about the PPC 140 • Technology Unchanged Unattainable point 120 100 U 80 • Fixed Resources • Fully Employed Resources Z B C Underutilization 60 40 PPC 20 D 20 40 60 80 Butter 100 120

Chapter 1 - Introduction to Economics Production Possibilities Curve — Law of Increasing Opportunity cost Guns Marginal Analysis 160 A B An examination of the effects of additions to 140 or subtractions from a current situation. The Law of Increasing Opportunity Costs The principle that the opportunity cost increases as production of one output expands. This is responsible for the “bowed shape” of the PPC. 120 C 100 80 60 Reasoning • not all workers are equally suited to producing one good , compared to another. • as we shift production levels of butter, we gradually tap into the best gunmaking resources 40 PPC 20 D 20 40 60 80 Butter 100 120

Chapter 1 - Introduction to Economics Production Possibilities Curve — Movements and Shifts Guns 160 Shifts in the PPC Changes (increases) in the levels of a country’s LLC will cause the PPC to shift from PPC 1 to PPC 2 B 140 120 100 Movements along the PPC 80 Changes in the needs and wants cause a country to choose a different point along an existing PPC 60 C A 40 20 PPC 1 20 40 60 80 Butter PPC 2 100 120