chapter 1: what is economics? essential questions: unit 1: how does economics affect everyone?...
TRANSCRIPT
Chapter 1: What is Economics?Essential Questions:
Unit 1: How does economics affect everyone?Chapter 1: How can we make the best economic choices?
Scarcity and the Factors of Production Scarcity and choice
Economics exists because we have unlimited wants & needs but limited resources.
____vs. _______ Which is essential for
survival? What is something we want
but can live without?
______ v. _______ Physical objects such as
________ &___________ Actions or activities such
as __________ & __________
___________ is the fundamental problem in economics Needs and wants are
___________. When one is satisfied,
others come up. Goods & services are
___________ No one can have an
________ supply of ________
This is scarcity!!
People Choose As a result of _______,
people have to ________________.
Examples: Scarce _____: play a
sport or have an after school job?
Scarce _______: save for a car or save for college?
Scarce _______: hire more workers or open a new store?
What is Economics? Economics is the study
of how people (and businesses & governments) make choices as a result of the reality of scarcity.
Scarcity ≠ shortage Scarcity is __________as a _________ Scarcity is a
fundamental _______ ____________________
A shortage is a specific situation where buyers want ________ of a _______ than sellers are willing to make available at a given _________. (more about this in chapter 6)
Who makes goods & services?: The role of the _________________ Entrepreneurs are
_________ who decide how to combine _________ to create new _______ and ________.
They are willing to assume ______ in hopes of __________________
Etymology: French word coined by Jean-Baptiste Say (French economist in the 1700s)
The Factors of _______________ The factors of production are the _________
used to make all _______ and _________ What are they?
_________ (all the natural resources needed) _________ (workers) _________ (human-made resource used to
make other goods & services) (Entrepreneurship) many textbooks also list
this as a factor of production.
Factors of Production continued Land
Land for farming Coal for mining Water for running a
hydroelectric dam Doesn’t have to be
made or produced Naturally occurring
Factors of production continued Labor
Work people do that they are paid for Doctors providing
medical care Instruction provided
by a teacher Mechanic fixing
your car Painter painting
your house
Factors continued Capital _________ (human made) used to produce
other ______ & _________ Two types:1. ___________ capital (capital goods)
1. Buildings such as a factory2. Equipment on an assembly line
2. __________ capital 1. Knowledge & skills gained by workers
Benefits of Capital Many businesses
choose to invest in capital
Increases _____________ Better equipment such
as faster computers _______for workers to
make them more _______
See the book’s dishwasher example on p. 6-7
Benefits of Capital 1. Extra __________
Saves time to be more efficient
More ______________ Learn skills that can
transfer to other activities
More _______________ Can do more in the
extra time that is freed up
Scarce Resources Remember that
__________ is ________ so everyone has to
_______________ Even french fries
Use the land to grow the potatoes
Use the water to help them grow
Use the workers to farm the land
Use the fuel to run the equipment and transport them to stores
Scarcity continued Everyone faces
scarcity Individuals Businesses Families governments
Scarcity means we have to make choices about how to best use our scarce resources
This is what economics is all about!
Can something that is abundant be scarce? YES! Things can be
scarce and abundant at the same time!
Remember, it’s not the same as a shortage!
Water Air Oil in Saudi Arabia
What makes the difference?
Is it rare? Are there
alternative uses? Choices! (mutually
exclusive?)
Section 2: Opportunity Cost Every time we _______________________,
we _____________________ to do something else!
________________ and _________________ A ___________ is giving up one benefit to
get another benefit The foregone opportunity of the most
desirable alternative is the ________________
Would you….? Sleep late or wake up early to study for
a test Sleep late or wake up early to go to
work Sleep late or wake up early to eat
breakfast Sleep late or wake up early to go on a
trip The specific opportunity costs of each
choice determined your answer.
Thinking at the Margin Many economic decisions are made at the
___________ & thinking in terms of __________: What difference will _______________ of
investment make? _________________ worker? Studying for one more hour? To decide, you can compare the costs and
benefits. This is called cost/benefit analysis You can calculate the marginal benefits and
the marginal cost. If marginal benefits are _____________ than
marginal ___________, it pays to add more units (dollars, hours, workers, etc.)
Production Possibilities Curves Remember that scarcity means that
everyone (individuals, businesses, governments) has to make choices
How should scarce resources be used? Production Possibilities curves can help
because they show the options Guns vs. butter The example of Capeland on p. 14
Comparing options
Production Possibilities Frontiers Each point on the _____ reflects a ___________ These trade-offs must be made because
______________________ If you use __________________ to make one
thing, ____________to produce more of the other
Not all points are possible given the resources available
What does it mean to be underneath the curve or outside the curve?
Production Possibilities continued What does it mean if a point is below
the curve on the production possibilities frontier?
Underutilization of resources Unemployment Old equipment?
What does it mean if a point is outside the frontier?
Can’t achieve that point given the current resources
Requires _________ in the economy Means the curve has shifted to the _________ How could you get there? __________ investment (human or physical) Build a new factory Hire more workers New _____________? The curve can also shift to the ___________
Recession Drought Increase in the cost of capital goods?
Cost Can use production
_______________ to calculate the costs of ______ about how to use ___________
How much of producing ________ will you have to give up to get more of the __________?
Law of _____________ costs: you reach a point where it takes more and more of a resource to increase production Rain forest in South America Oil in North America
(“fracking”)
THIS LAW IS WHY THE CURVE IS A CURVE and not a straight line. There’s not a 1:1 trade-off It reaches a point where there’s more and more traded off for less and less output
Remember the essential question? How can we make the best economic
choices? Trade-offs and opportunity cost The fundamental problem is scarcity That’s why economics exists