Unit 1

Chapter 1-3

Chapter 1

Give us some examples of things you want?

Chapter 1

Definition of Economics
* Technical Definition: A social science that studies how individuals, governments, firms and nations make choices on allocating (distributing) scarce (not enough for demand) resources to satisfy their unlimited wants.

* Write your own definition: YOUR OWN!!!

ECONOMICS
Chapter 1

#1 PROBLEM IN ECONOMICS

Answer to Problem

(Not enough for demand)

(Productive without wasting)

Chapter 1

Quiz time.(be BRAVE)

Can

I take you out to breakfast/lunch/dinner?

According

to an economist is the meal really free for you? = There is NO such thing as a free

TINSTAAFL

lunch

Chapter 1

What to produce How to produce For whom to produce for

We have to make better decisions on

Also known as the Three Basic Questions

For society to produce they must have the four elements known as the Factors of Production (FOP) Capital Entrepreneurship Land Labor
FOP = CELL

Chapter 1

Scope of Economics
Description -Whats going on (economic Activity)? -Helps to form questions Analysis -Look into the minute details. - Discovers the Whys and Hows Prediction Whats to come.

Explanation Explain/relay whats occuring

Chapter 1

Basic Economic Concepts

Chapter 1

Goods & Services

*Definition of a good -consumer good -capital good *Examples of services *Definition of cosumer

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Value, Utility, and Wealth

*Defining value ???Things that make you go hhhhmmm??? Paradox of Value *Defining Utility *Defining Wealth

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Productivity and Economic Growth

Define Economic Growth Productivity Factor Market Product Market Division of Labor Specialization Human Capital Economic Interdependence
Circular Flow of Economic Activity

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Economic Choices and Decision Making

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Trade-offs and Opportunity Cost

Trade-offs

are all the alternatives that we give up whenever we choose one course of action over others. The most desirable alternative given up as a result of a decision is known as opportunity cost. All individuals and groups of people make decisions that involve trade-offs.
Chapter 1 Pearson Hall

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Economists

encourage us to consider the benefits and costs of our decisions.

Karens Decision-making Grid
Alternatives
Sleep late Benefits Enjoy more sleep Have more energy during the day Wake up early to study Better grade on test Teacher and parental approval Personal satisfaction Wake up early to study for test Extra sleep time Enjoy more sleep Have more energy during the day

Decision Opportunity cost Benefits forgone

Sleep late Extra study time Better grade on test Teacher and parental approval Personal satisfaction

Chapter 1 Pearson Hall

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Thinking at the Margin

Options Benefit Opportunity Cost 1st hour of extra Grade of C on 1 hour of study When you decide test how much more or less time sleep 2nd hour of extra study time 3rd hour of extra study time

to do, you are thinking at the margin.

Grade of B on test

2 hours of sleep 3 hours of sleep

Grade of B+ on test

Chapter 1 Pearson Hall

Mini Assessment
Does

every decision you make involve trade-offs? How can a decision-making grid help you identify the opportunity cost of a decision? How will thinking at the margin affect decisions you make?

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Production Possibilities

A production possibilities graph shows alternative ways that an economy can use its resources. The production possibilities frontier is the line that shows the maximum possible output for that economy.
Production Possibilities Graph
25 Shoes (millions of pairs) 20

Watermelons Shoes (millions of tons) (millions of pairs) 0 8 14 18 20 21 15 14 12 9 5 0

15
10 5

a (0,15)

b (8,14) c (14,12) d (18,9)

A production possibilities frontier 0

e (20,5) f (21,0)

5 10 15 20 25 Watermelons (millions of tons) Chapter 1 Pearson Hall

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Efficiency

Production Possibilities Graph

2

Shoes (millions of pairs)

Efficiency - using resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently.

5 S a (0,15) 0 b (8,14) c (14,12) g (5,8) 1 e (20,5) 5 0 1 A point of underutilization 5 f (21,0) 2 5 d (18,9)

1 1 2 0 5 0 Watermelons (millions of tons)

Chapter 1 Pearson Hall

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Growth

Production Possibilities Graph

25 T Future production Possibilities frontier

20

Growth - If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve shifts to the right.

Shoes (millions of pairs)

15

S a (0,15) b (8,14) c (14,12) d (18,9)

10

5 e (20,5) f (21,0) 0 5 10 15 20 25

Watermelons (millions of tons)

Chapter 1 Pearson Hall

Section 3 Assessment
1. A production possibilities frontier shows (a) farm goods and factory goods produced by an economy. (b) the maximum possible output of an economy. (c) the minimum possible output of an economy. (d) underutilization of resources. 2. An economy that is using its resources to produce the maximum number of goods and services is described as (a) efficient. (b) underutilized. (c) growing. (d) trading off.