Chapter 1 Section 1

List the problem that each of the following faced:1. The Consumers – You and I2. The Producer – Mattel 3. The Stores – Babies R Us

• During the holiday season of 1996, a children's toy appeared on Good Morning America. The toy, produced by Mattel, had sat on the shelves with very little sales until it appeared on the show. After the toys appearance, its popularity improved and it became the most sought after product of the holiday season. Unfortunately, Mattel did not anticipate the doll’s popularity, only producing 400,000 units, and were not able provide the product in a timely manner at the store level (over 1,000,000 were in demand).

Objectives

Determine difference between want and need

Define scarcity and economics Understand the concept of

opportunity cost Determine the difference between

the different types of tradeoffs Identify what is meant by “No such

thing as free lunch”

Unit 1: Fundamental Economic ConceptsCHAPTER 1 - What Is Economics?

Section 1 – Scarcity and the Factors of Production

Scarcity - fundamental problem facing all people; unlimited wants and limited resources to satisfy those wants

No one can have an endless supply of everything e.g. - money, time, rest, etc.

Scarcity applies to everyone; no one can have an endless supply of everything

Application Question List three things that you feel are scarce in your life,

what has caused them to become scarce?

What is Economics? Economics – the study of choices; how individuals

and groups seek to satisfy their wants and needs in light of scarcity

Needs vs. Wants Need – a basic requirement for survival

e.g. – food, clothing, education, etc… Want – not a basic requirement for survival; a means

of expressing a need e.g. – cheeseburger, Abercrombie and Fitch,

University of Georgia, etc…

OR

Good – physical, tangible(touchable) productGoods

i.e. – Automobiles, Video Games, Cell Phones, CD’s, Tickle Me Elmo, etc…

Service – a non-tangible action or activity that is performed for someone else

Services

i.e – Financial Advisor, Stock Broker, Movies, Dentist, Teachers, etc..

b. Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).

- Factors of Production - resources required to produce goods and services Land Labor Capital Entrepreneurship

Factors of Production

Land – natural resources not created by human effort that are used to produce goods and services

Land

Labor – time and effort that a person devotes to producing goods and services.

Labor

Capital Capital – resource that is used to produce additional goods and services Physical Capital – also known as Capital Goods - Human made objects used to

create other goods and services Human Capital – collective amount of skills, abilities, and specialized growth of

people. Financial Capital - money used by entrepreneurs and businesses to buy what they

need to make their products or provide their services

Entrepreneurs – ambitious leaders who organize the factors of production to create new goods and services

Entrepreneurs

Essential Question 1 + 21. Why is scarcity a permanent

condition?

2. What are the four factors of production and an example of each?

• Scarcity reflects the limited resources of a society, but unlimited wants of it’s members.

1. Land – natural resources such as oil, trees, water, wind, gold, cattle, etc.

2. Labor – workers, human resources3. Capital – machines, factories or anything that

is used to produce goods and services4. Entrepreneurs – business people that use the

f.o.p. to produce goods and services

Essential Question 3, 4 + 53. Why does every decision involve a trade-off? 4. What does opportunity cost measure?

5. What does it mean to think at the margin?

• We always give up something to get something else

• The cost of the next best use of time money or resources

• Thinking about the cost and benefits of decision-making

Essential Question 66. What is illustrated by the PPC Model; what 3 production possibilities are shown (a, d, x)?

• The tradeoff between two goods.• inefficiency/underutilization, efficiency, currently unattainable

Chapter 1 Section 2

Activity: What to do with a pack of Gum?

Section 2-Scarcity

We live in a world of relative scarcity.

Scarcity exists when resources have more than one valuable use.

Scarcity exists even in the midst of abundance.

Scarcity forces people to choose between alternatives.

Scarcity

People choose thoughtfully from the alternatives they identify.

Individuals’ evaluation of alternatives is subjective.

Scarcity is dealt with more effectively by recognizing that the distinction between needs and wants is subjective.

Societies have adopted a variety of allocation systems to deal with scarcity.

Scarcity

The opportunity cost of choosing one alternative is the value given up by not taking advantage of the next best alternative.

To choose is to refuse:  the decision to take the benefits of one alternative means refusing the benefits associated with the next-best opportunity.

Good decision-making occurs at the margin.

Scarcity We seldom make all-or-nothing

decisions; everyday life is an exercise in marginal decision-making.

Decisions to continue or discontinue an activity are made by weighing the additional expected benefits against the additional expected costs.

Section 2 – Opportunity Cost Trade-off – alternatives that we give up whenever we

choose one course of action over another We always give up something to get something else “There is no such thing as a free lunch.” (TINSTAAFL) Individuals, households and society all face tradeoffs

Opportunity Cost Opportunity Cost – used by economists to measure the

cost of decision-making; value of the most desirable alternative given up Next best alternative use of money, time, or resources

(Highest-valued alternative forgone)

Coming to Economics

Sleeping (Opportunity Cost)

Trade-Offs

Individuals and Trade-Offs Businesses and Trade-Offs Society and Trade-Offs

Trade-Offs

Individual Tradeoffs=Trade-offs that directly effect the individual

Business Tradeoffs-Tradeoffs that business people make about how to use land, labor, and capital resources.

Society Tradeoffs-Tradeoffs that directly affect the country or their interests.

Method of comparing the costs of an action to the benefits received.

Cost-benefit-analysis

Alternatives

CriteriaImmediat

e Satisfacti

on

Long Term Benefits

Entertaining

Immediate Financial Benefits

Necessary for Long-

term success

Sleep

Economics

Decision-Making Grid

Alternatives

CriteriaImmediat

e Satisfacti

on

Long Term Benefits

Entertaining

Immediate Financial Benefits

Necessary for Long-

term success

Sleep Yes No Yes No No

Economics

Yes Yes Yes No Yes

Method of comparing the costs of an action to the benefits received.

Cost-benefit-analysis

Decision-Making Grid

Alternatives

CriteriaImmediat

e Satisfacti

on

Long Term Benefits

Entertaining

Immediate Financial Benefits

Necessary for Long-

term success

Sleep Yes No Yes No No

Economics

Yes Yes Yes No Yes

Method of comparing the costs of an action to the benefits received.

Cost-benefit-analysis

Decision-Making Grid

Production Possibilities Model PPF Model – shows combinations of output that an economy (society, firm

or individual) has the ability to produce given the productive resources available

Used to visually represent opportunity costQuantity ofComputersProduced

Quantity ofCars Produced

0 300 600 700 1,000

3,000

AB

E

F

1,000

2,2002,000

ProductionPossibilitiesFrontier

Possibility Tickle Me Elmo Cookie Monster

Production Possibilities Frontier Model

a 0 and 15b 8 and 13c 14 and 11d 18 and 7e 21 and 5f 25 and 0

Production Possibilities Curve

Tickle Me Elmo's (millions per month)

5 10 15 20 25

5

10

15a

b

c

d

Coo

kie

Mon

ster

s (m

illi

ons

per

mon

th)

e

20

f0

(PPC) – shows combinations of production and the opportunity cost at each point (at the margin)

Efficiency – using resources in such a way as to maximize the production of goods and services *Points along the curve, lines (a – f) *

Efficiency

Underutilization (Inefficiency) Underutilization – using fewer resources than an economy/business is

capable of; inefficient use of resources Points inside the curve (inefficient use of resources)

x

Underutilization

Growth Growth (future technology) – the change in ability to produce, reflects a

change in the curve; Currently unattainable level of production New frontier (usually as a result of new technology)

Production Possibilities Frontier Model Constant opportunity cost - Linear shape of the curve represents a

perfect/proportional tradeoff between two goods

Work

Play0

30 Min

B

C

A

30 Min

1 Hour

1 Hour

Shape of the Curve

Law of increasing opportunity cost - as production increases, the cost to produce an additional unit of that product increases as well.

Calzones

Pizza

3029

25

15

Good A 1 2 3 4 5 6

Goo

d B

12

10

8

6

4

2

0

Good A Good B

0 12

1 10

2 8

3 6

4 4

5 2

6 0

Answer the following questions based on the model above:

1. The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.

2. The opportunity cost of increasing production from Good A from one unit to two unit is the loss of __________ unit (s) of Good B. The total loss is _____

3. The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

PPC Activity

Good A 1 2 3 4 5 6

Goo

d B

12

10

8

6

4

2

0

Good A Good B

0 12

1 10

2 8

3 6

4 4

5 2

6 0

Answer the following questions based on the model above:

1. The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.

2. The opportunity cost of increasing production from Good A from one unit to two units is the loss of __________ unit (s) of Good B. The total loss is ____

3. The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

PPC Activity

2

2

12

4

Good A 1 2 3 4 5 6

Goo

d B

12

10

8

6

4

2

0

Good A Good B

0 12

1 10

2 8

3 6

4 4

5 2

6 0

Answer the following questions based on the model above:

1. The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B.

2. The opportunity cost of increasing production from Good A from one unit to two unit is the loss of __________ unit (s) of Good B. The total loss is _____

3. The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

PPC Activity

2

2

12

4

Unattainable/Future Growth

Underutilzation/Ineffeciency

PPC - Current frontier/Efficient

Section 2 – Basic Economic Concepts Economic Products – relatively scarce

goods and services that have utility to consumers, and as a result command a price.

Utility – capacity to be useful to the consumer; a way to measure value.

Precious Jewels Water

Consumer – person that uses goods/services in order to satisfy

wants and needs.

Consumer Good – intended for final use

by the individual.

Personal Computer Writing Utensil

Conspicuous Consumption – the use of good/services to

impress others.

Durable Good – any good that lasts three years or more when used

regularly.

Television Recording Equipment

Nondurable Good – an item that lasts less than three years

when used regularly

Food Paper

Economic Growth A Nations total output of goods and

services increases over time. Gross Domestic Product - total

market value of all the goods and services produced within the borders of a nation during a specified period.

Wealth The total accumulation of a nation’s goods

(stuff). Buildings, highways, homes, cars, etc.

Activity

Determine your own personal wealth