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Chapter 1 : Lesson 2 Our Economic Choices

Chapter 1 : Lesson 2 Our Economic Choices. Essential Question. Why is it important to evaluate trade offs and opportunity costs when making choices?. How Do You Know When. Scarcity Forces You to CHOOSE. Something Is Scarce?. SCARCITY CHOICE. Why Choices?.

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Chapter 1 : Lesson 2 Our Economic Choices

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  1. Chapter 1 : Lesson 2 Our Economic Choices

  2. Essential Question Why is it important to evaluate trade offs and opportunity costs when making choices?

  3. How Do You Know When Scarcity Forces You to CHOOSE Something Is Scarce? SCARCITY CHOICE

  4. Why Choices? We make choices about how we spend our money, time, and energy so we can fulfill our NEEDS and WANTS. What are NEEDS and WANTS?

  5. Wants and Needs, Needs and Wants • NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing • WANTS – “stuff” we would really like to have (Fancy food, big screen TVs, jewelry, conveniences . . . Also known as LUXURIES

  6. VS.

  7. TRADE-OFFS You can’t have it all (SCARCITY – remember?) so you have to choose how to spend your money, time, and energy. These decisions involve picking one thing over all the other possibilities – a TRADE-OFF!

  8. Trade-Offs, cont. • What COULD you have done instead of come to school today? • These are all Trade-Offs!

  9. A special kind of Trade-Off is an OPPORTUNITY COST = The Value of the Next Best Choice (Ex: Sleeping is the opportunity cost of studying for a test)

  10. Opportunity Costs • This is really IMPORTANT – when you choose to do ONE thing, its value (how much it is worth) is measured by the value of the NEXT BEST CHOICE. • This can be in time, energy, or even MONEY Then I can’t afford the movies… If I buy a pizza… Q: What is the opportunity cost of buying pizza?

  11. Opportunity Cost =the value of theNext-Best Alternative • What are the considered alternatives? • What does the decision-maker perceive to be the benefits of each alternative?

  12. Opportunity Cost Analysis What was the 1st decision you made this morning?

  13. Opportunity Cost Analysis Decision Maker: Mr. Parks

  14. Opportunity Cost Analysis Decision Maker: Mr. Parks More sleep

  15. Opportunity Cost Analysis Decision Maker: Mr. Parks More sleep

  16. Opportunity Cost Analysis Decision Maker: Mr. Parks More sleep X

  17. Choosing is Refusing • Every time we choose we pay a cost.

  18. People’s Choices are always RATIONAL • Rational choice = choosing the alternative that has the greatest excess of benefits over costs. • If ALL choices are rational, then the challenge is to understand the decision-maker’s perception of costs and benefits.

  19. Do Gov’t actions have opportunity costs? • Government Debt • Economic Stimulus Package • War in Iraq • Limiting Carbon Emissions • Universal Healthcare All alternatives have cost and benefits Individuals perceive the value of costs and benefits differently

  20. Methods of Rationing Scarce Goods and Services prices command (someone decides) majority rule contests by force voting first-come-first-served sharing equally lottery personal characteristics need or merit

  21. Prices: POWERFUL Incentives • When prices change, opportunity costs change –that’s an incentive! • Both consumers and producers react to prices in ways that help us to deal with scarcity.

  22. Production • So how do we get all this “stuff” that we have to decide about? Decisions, decisions …

  23. Production is how much stuff an individual, business, country, even the WORLD makes. But what is “STUFF”? STUFF – Goods and Services. Goods – tangible (you can touch it) products we can buy Services – work that is performed for others PRODUCTION

  24. Factors of Production • So, what do we need to make all of this Stuff?

  25. 4 Factors of Production • LAND – Natural Resources • Water, natural gas, oil, trees (all the stuff we find on, in, and under the land)

  26. 4 Factors of Production • LABOR – Physical and Intellectual • Labor is manpower

  27. 4 Factors of Production • CAPITAL - Tools, Machinery, Factories • The things we use to make things • Human capital is brainpower, ideas, innovation

  28. 4 Factors of Production • ENTREPRENEURSHIP – Investment $$$ • Investing time, natural resources, labor and capital are all risks associated with production

  29. Land Production/Manufacturing “Factory” Goods Labor Consumers Capital Services Entrepreneurship

  30. CHANGES IN PRODUCTION • If we INCREASE land, labor, capital we INCREASE production • Many entrepreneurs invest profit back into production • If we DECREASE land, labor, capital we DECREASE production

  31. Review Question: Chapter 1: Lesson 2 Read pages 14-20 and answer Review Questions on page 20. Hand in Google Class Room.

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