ECONOMICS Ms Curran August 17 Economics The study

ECONOMICS Ms. Curran August 17

Economics ■ The study of how individuals, families, business, and societies use their limited resources to fulfill their unlimited wants

2 Types: Micro vs. Macro ■ Microeconomics – The branch of economic theory that deals with behavior and decision making by small units such as individuals and firms. ■ Macroeconomics – The branch of economics theory dealing with economy as a whole and decision-making by large units such as governments.

Need vs Wants ■ Need – something like air, food, or shelter that is necessary for survival ■ Want – an item that we desire but that is not essential to survival – Example….

Scarcity ■ A basic economic problem that exists when there are not enough resources to meet human wants. – NOT a temporary shortage of something. – It goes on… and on… ■ Don’t mix up with shortage – More will come! – Ex: supermarket running out of pizza rolls

Goods & Services ■ Goods – tangible (physical) items that people buy such as medicine, clothing, or computers ■ Services – work that one person performs for another for payment – What are some services that you use? ■ Consumers buy g&s ■ Producers makes g&s

The Three Economic ■ Scarcity leads to three economic questions… Questions 1. What will be produced? 1. A society must decide the mix of goods and services it will produce. 2. How will it be produced? 1. Using scarce resources in the most efficient way to satisfy society’s wants. 3. For whom will it be produced? 1. How goods and services are distributed among people in society. 1. Everyone gets and equal share? 2. How much are you willing to pay?

4 Factors of Production ■ Factors of Production – the economic resources needed to produce goods and services – 4 broad categories… All with the same thing in common… ■ Supply is limited!

4 Factors of Production ■ Land – all natural resources found on or under the ground that are used to produce goods and services ■ Labor – all the human time, effort, and talent that go into the making of products

4 Factors Continued ■ Capital – all the resources made and used by people to produce and distribute goods and services – Physical Capital – a producer’s physical resources; i. e. tools, machinery, factories – Human Capital – the knowledge and skills gained through experience ■ Entrepreneurship – the combination of vision, skill, ingenuity, and willingness to take risks that are needed to create and run new businesses

ECONOMICS Ms. Curran January 6 August 21

Factors of Production Activity You & and partner will be responsible for deciding what Land, Labor and Capital may be needed for each of the products listed on your sheet.

Opportunity Cost This one or that one?

Choices ■ What shapes the economic choices people make? – Incentives – benefits offered to encourage people to act in certain ways – Utility – the benefit or satisfaction gained from the use of a good or service – Economize – make decisions according to what you believe is the best combination of cost and benefit

TANSTAAFL ■ “There Ain’t No Such Thing As A Free Lunch. ” ■ Everything costs something

Opportunity Cost ■ Opportunity Cost – the value of the next-best alternative ■ Trade-off – alternative people give up when they make choices ■ Cost-benefit analysis – weighing the benefits of an action against its costs

Example

Making Choice Chart

ECONOMICS Ms. Curran August 23 BW: Please define opportunity cost in your own words and give an example.

Production Possibilities

Possibilities! ■ Economic model – simplified representations of complex economic activities, systems, or problems, that help clarify trade-offs. ■ Production Possibilities Curve (PPC) – shows the impact of scarcity on an economy ■ Increases a company’s efficiency – But how? ■ By showing the maximum number of goods or services that can be produced using limited resources

PPC – What is it? ■ PPC has 3 important economic concepts: – Scarcity affects production possibilities – people choose what to produce. – Trade-offs are made with any choice – Any choice has opportunity cost.

PPC Assumptions ■ Based on four assumptions: – Resources are fixed – there is no way to get more land, labor, capital, or entrepreneurship. – All resources are being used – economy is at full production – Only two things can be produced – one variable on each axis ■ Ms. Curran says this makes graphing a lot easier… and we’re OK with that. – Technology is fixed – no technological advances will occur.

Example § Look at the pens § Company has options

Learning from PPC ■ Efficiency – condition in which economic resources are being used to produce the max amount of goods and services ■ Underutilization – condition in which economic resources are not being used to their full potential ■ On the graph – Point below the curve = underutilization – Point above curve = impossibility

The Production Possibilities Curve ■ Before we graph…. ■ We must chart!

Production Possibilities Curve: Bread vs. Muffins 12 10 Loaves of Bread 8 6 4 2 0 10 20 30 40 50 Bran Muffins 60 80 90 100 110

Whys it Curved ■ Law of Increasing Opportunity Cost – As production switches from one product to another, increasingly more resources are needed to increase the production. This leads to an increase in opportunity cost.

Review for Test ■ Make sure study guide is completed! ■ Review and come in with any questions tomorrow ■ Test Thursday 8/24