Chapter 1 Lesson 2 Our Economic Choices Economics

Chapter 1 : Lesson 2 Our Economic Choices Economics for Leaders

Essential Question Why is it important to evaluate trade offs and opportunity costs when making choices?

How Do You Know When Something Is Scarce? Scarcity Forces You to CHOOSE SCARCITY Economics for Leaders CHOICE

Why Choices? We make choices about how we spend our money, time, and energy so we can fulfill our NEEDS and WANTS. What are NEEDS and WANTS? Economics for Leaders

Wants and Needs, Needs and Wants NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing WANTS – “stuff” we would really like to have (Fancy food, big screen TVs, jewelry, conveniences. . . Also known as LUXURIES Economics for Leaders

VS. Economics for Leaders

TRADE-OFFS You can’t have it all (SCARCITY – remember? ) so you have to choose how to spend your money, time, and energy. These decisions involve picking one thing over all the other possibilities – a TRADEOFF! Economics for Leaders

Trade-Offs, cont. What COULD you have done instead of come to school today? These are all Trade-Offs! Economics for Leaders

A special kind of Trade-Off is an OPPORTUNITY COST = The Value of the Next Best Choice (Ex: Sleeping is the opportunity cost of studying for a test) Economics for Leaders

Opportunity Costs This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. – This can be in time, energy, or even MONEY Then I can’t afford the movies… If I buy a pizza… Q: What is the opportunity cost of buying pizza? Economics for Leaders

Opportunity Cost =the value of the Next-Best Alternative – What are the considered alternatives? • What does the decision-maker perceive to be the benefits of each alternative? Economics for Leaders

Opportunity Cost Analysis What was the 1 st decision you made this morning? Economics for Leaders

Opportunity Cost Analysis Decision Maker: Mr. Parks Alternatives: Perceived Benefits Choice Opp. Cost Economics for Leaders Get Up Now 5: 15 AM Don’t Get Up Now

Opportunity Cost Analysis Decision Maker: Mr. Parks Alternatives: Perceived Benefits Choice Opp. Cost Economics for Leaders Get Up Now Don’t Get Up Now Shower More sleep bkfst don’t rush On time coffee

Opportunity Cost Analysis Decision Maker: Mr. Parks Alternatives: Perceived Benefits Choice Opp. Cost Economics for Leaders Get Up Now Shower bkfst don’t rush On time coffee X Mr. Parks will be more cranky in Class because lack of sleep Don’t Get Up Now More sleep

Opportunity Cost Analysis Decision Maker: Mr. Parks Alternatives: Perceived Benefits Choice Opp. Cost Economics for Leaders Get Up Now Shower bkfst don’t rush On time coffee Don’t Get Up Now More sleep X Ms. Denney Writes me up for being late and wont see Mr. Parks greeting you outside

Choosing is Refusing Every time we choose we pay a cost. Economics for Leaders

People’s Choices are always RATIONAL Rational choice = choosing the alternative that has the greatest excess of benefits over costs. If ALL choices are rational, then the challenge is to understand the decisionmaker’s perception of costs and benefits. Economics for Leaders

Do Gov’t actions have opportunity costs? Government Debt Economic Stimulus Package War in Iraq Limiting Carbon Emissions Universal Healthcare All alternatives have cost and benefits Individuals perceive the value of costs and benefits differently Economics for Leaders

Methods of Rationing Scarce Goods and Services prices command (someone decides) majority rule contests by force voting Economics for Leaders first-come-firstserved sharing equally lottery personal characteristics need or merit

Prices: POWERFUL Incentives When prices change, opportunity costs change – that’s an incentive! Both consumers and producers react to prices in ways that help us to deal with scarcity. Economics for Leaders

Production So how do we get all this “stuff” that we have to decide about? Decisions, decisions … Economics for Leaders

PRODUCTION Production is how much stuff an individual, business, country, even the WORLD makes. But what is “STUFF”? Economics for Leaders STUFF – Goods and Services. Goods – tangible (you can touch it) products we can buy Services – work that is performed for others

Factors of Production So, what do we need to make all of this Stuff? Economics for Leaders

4 Factors of Production LAND – Natural Resources – Water, natural gas, oil, trees (all the stuff we find on, in, and under the land) Economics for Leaders

4 Factors of Production LABOR – Physical and Intellectual – Labor is manpower Economics for Leaders

4 Factors of Production CAPITAL - Tools, Machinery, Factories – The things we use to make things – Human capital is brainpower, ideas, innovation Economics for Leaders

4 Factors of Production ENTREPRENEURSHIP – Investment $$$ – Investing time, natural resources, labor and capital are all risks associated with production Economics for Leaders

Land Goods Labor Production/Manufacturing “Factory” Consumers Capital Services Entrepreneurship Economics for Leaders

CHANGES IN PRODUCTION If we INCREASE land, labor, capital we INCREASE production – Many entrepreneurs invest profit back into production If we DECREASE land, labor, capital we DECREASE production Economics for Leaders

Review Question: Chapter 1 : Lesson 2 Read pages 14 -20 and answer Review Questions on page 20. Hand in Google Class Room.