The Economic Way of Thinking Unit 1 Economic

The Economic Way of Thinking Unit 1

Economic Questions 1. 2. 3. 4. What to produce? How to produce it? Whom to produce it for? How to distribute it?

Scarcity n n n Scarcity is the combination of unlimited wants and needs versus limited resources. Resources can be land, labor, or capital In order to be considered scarce the resource must be limited and desirable

Scarcity n What scarcity is NOT n It is not a shortage. n It is not the same thing as poverty. Chapter 2 - Scarcity and the World of Trade-Offs 4

Scarcity n Resources or Factors of Production n Land n n Natural resources or the gifts of nature Labor n The human resource Chapter 2 - Scarcity and the World of Trade-Offs 5

Scarcity n Resources or Factors of Production n Physical Capital n n All manufactured resources Human Capital n Accumulated training and education of workers Chapter 2 - Scarcity and the World of Trade-Offs 6

Scarcity n Resources or Factors of Production n Entrepreneurship n Person who organizes, manages, and assembles the other resources n Risk taker n Maker of basic business policy decisions Chapter 2 - Scarcity and the World of Trade-Offs 7

Opportunity Cost n n The most desirable alternative given up as the result of a decision. Most economists use a cost-benefit analysis to make decisions. Decision-Making Grid (Pg 10 in your book) Trade-offs are ALL the alternatives that were given up.

Scarcity, Choice, and Opportunity Cost Limited Resources & Unlimited Wants Scarcity Choices Opportunity Cost Chapter 2 - Scarcity and the World of Trade-Offs 9

Production Possibilities Curve n n n Graph that shows alternative ways to use an economy’s resources. Only measures the choice of two goods or services. Each point on the curve reflects a trade-off between the two goods or services.

Production Possibilities Curve for Grades in Mathematics and Economics (Trade-Offs) Chapter 2 - Scarcity and the World of Trade-Offs 11

Society’s Trade-Off Between Digital Cameras and Pocket PCs Chapter 2 - Scarcity and the World of Trade-Offs 12

Society’s Trade-Off Between Digital Cameras and Pocket PCs Chapter 2 - Scarcity and the World of Trade-Offs 13

Economic Growth Allows for More of Everything Chapter 2 - Scarcity and the World of Trade-Offs 14

Circular Flow Model The Circular Flow Model is a "picture" of a market economy in action. The Factors of Production (land, labor, capital and entrepreneurship) flow from households (consumers like you and me) to producers (businesses). Goods and services flow from producers to consumers and, in exchange, money flows in the opposite direction.