what is economics? chapter 1. economics: the study of how people seek to satisfy their needs and...
TRANSCRIPT
What is Economics?
Chapter 1
Economics:
•The study of how people seek to satisfy their needs and wants by making choices
Needs vs. Wants• Needs: things NECESSARY for survival
• Wants: things we desire but are NOT ESSENTIAL to survival
Scarcity•Limited quantities of resources to meet unlimited wants
Shortage
•A situation in which a good or service is unavailable
Factors of Production• Land• Labor• Capital
–Human–Physical
Remember these!You will hear them a
lot this semester!
Land
Natural resources (land, coal, water, forests, etc.)
Labor
The effort people devote to a task for which they are paid
Capital–Physical: Human made objects
used to create other goods and services
–Human: The skills and knowledge gained by a worker through education and experience
Entrepreneurs• Ambitious leaders who
combine land, labor, and capital to create and market new goods and services.
Opportunity CostThere is no such thing There is no such thing
as a free lunch!as a free lunch!
Spring Break…Which would you choose?
Hawaii New YorkLas Vegas CancunParis TokyoVail Tahiti
Trade-offs…options when you make a choice.
• Individuals
–work or free time
–study or sleep
• Business
–Goods or Services
–Produce or Sell
Alternatives
Sleep LateWake up early
to study
Benefits? ?
DecisionSleep Late
Wake up early to study
Opportunity Cost
? ?
Benefits forgone
? ?
Decision Making Grid
Thinking at the MarginOptions Benefit Opportunity
Cost
1st hour of extra study time
? ?
2nd hour of extra study time
? ?
3rd hour of extra study time
? ?
Production Possibilities Curves
• Graphs that show alternative ways to use an economy’s resources
Coffee
Tea
50
50
Coffee
Tea
50
50
Any production
in this
space is
inefficient…you
have the supplies
but aren’t making
the coffee or tea
Efficiency• Efficiency means 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.
Coffee
Tea
50
50
Any production
along
this line is
EFFICIENT
Growth• 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.”
Coffee
Tea
50
50
Al gets a loan from
The bank and now
He can make even
More coffee or tea!
Chapter 1Things to think about…
What is the difference between
a good and a service?
How is scarcity different from shortages?
What does the term “guns or butter”
mean?
What does it mean to “think at the
margin”?
What are the opportunity costs
involved in:
Eating pizza
Going to see a movie on a Tuesday
Going to see a movie on a Saturday
Watching TV
Studying for a test
Finishing High School
Getting Married
Having a Kid
How is underutilization depicted on a
production possibilities frontier?
How does a production
possibilities curve illustrate opportunity
cost?
Decide whether to work 2, 4, or 6 hours at an after-school job by comparing the opportunity cost and benefit of each alternative.
Benefit Cost2 hours4 hours6 hours
Decide whether to finish the semester and graduate by comparing the opportunity cost and benefit for each alternative
Benefit CostGraduate NowGraduate laterGet a GEDDrop Out