Chapter 1 Section 1

1. Chapter 1 Section 1 • 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). • List the problem that each of the following faced: • The Consumers – You and I • The Producer – Mattel • The Stores – Babies R Us

2. 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”

3. 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

4. Application Question • List three things that you feel are scarce in your life, what has caused them to become scarce?

5. What is Economics? • Economics – the study of choices; how individuals and groups seek to satisfy their wants and needs in light of scarcity

6. 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

7. Goods Good – physical, tangible(touchable) product • i.e. – Automobiles, Video Games, Cell Phones, CD’s, Tickle Me Elmo, etc…

8. Services Service – a non-tangible action or activity that is performed for someone else • i.e – Financial Advisor, Stock Broker, Movies, Dentist, Teachers, etc..

9. Factors of Production • 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

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

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

12. 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

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

14. Essential Question 1 + 2 Why is scarcity a permanent condition? 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. Land – natural resources such as oil, trees, water, wind, gold, cattle, etc. Labor – workers, human resources Capital – machines, factories or anything that is used to produce goods and services Entrepreneurs – business people that use the f.o.p. to produce goods and services

15. Essential Question 3, 4 + 5 • Why does every decision involve a trade-off? • What does opportunity cost measure? • 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

16. Essential Question 6 • 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

17. Chapter 1 Section 2 Activity: What to do with a pack of Gum?

18. 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.

19. 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.

20. 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.

21. 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.

22. 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

23. 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) Sleeping (Opportunity Cost) Coming to Economics

24. Trade-Offs Individuals and Trade-Offs Businesses and Trade-Offs Society and Trade-Offs

25. 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.

26. Decision-Making Grid • Method of comparing the costs of an action to the benefits received. • Cost-benefit-analysis

27. Decision-Making Grid • Method of comparing the costs of an action to the benefits received. • Cost-benefit-analysis

28. Decision-Making Grid • Method of comparing the costs of an action to the benefits received. • Cost-benefit-analysis

29. 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 cost Quantity of Computers Produced 3,000 Production Possibilities Frontier 2,200 2,000 1,000 F A B E 300 600 700 0 1,000 Quantity of Cars Produced

30. Production Possibilities Frontier Model a 0 and15 b8and13 c 14and11 d18 and 7 e 21 and 5 f25 and 0 Possibility Tickle Me Elmo Cookie Monster

31. a b c d f e Production Possibilities Curve • (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) * 20 Efficiency 15 Cookie Monsters (millions per month) 10 5 0 5 10 15 20 25 Tickle Me Elmo's (millions per month)

32. x Underutilization (Inefficiency) Underutilization • Underutilization – using fewer resources than an economy/business is capable of; inefficient use of resources • Points inside the curve (inefficient use of resources)

33. 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)

34. Production Possibilities Frontier Model • Constant opportunity cost - Linear shape of the curve represents a perfect/proportional tradeoff between two goods Work 1 Hour 30 Min B A C 0 30 Min Play 1 Hour

35. 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. Pizza 30 29 25 15 Calzones

36. PPC Activity 12 10 8 6 4 2 Good B 0 1 2 3 4 5 6 Good A • Answer the following questions based on the model above: • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B. • 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 _____ • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B.

37. PPC Activity 12 10 8 6 4 2 Good B 0 1 2 3 4 5 6 Good A • Answer the following questions based on the model above: • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B. • 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 ____ • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B. 2 2 4 12

38. PPC Activity 12 10 8 6 4 2 Unattainable/Future Growth Good B PPC - Current frontier/Efficient Underutilzation/Ineffeciency 0 1 2 3 4 5 6 Good A • Answer the following questions based on the model above: • The opportunity cost of increasing production from Good A from zero units to one unit is the loss of __________ unit (s) of Good B. • 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 _____ • The opportunity cost of increasing production from Good A from zero units to 6 units is the loss of _________ unit (s) of Good B. 2 2 4 12

39. 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

40. Consumer – person that uses goods/services in order to satisfy wants and needs.

41. Consumer Good – intended for final use by the individual. Personal Computer Writing Utensil

42. Conspicuous Consumption – the use of good/services to impress others.

43. Durable Good – any good that lasts three years or more when used regularly. Television Recording Equipment

44. Nondurable Good – an item that lasts less than three years when used regularly Paper Food

45. 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.

46. Wealth • The total accumulation of a nation’s goods (stuff). • Buildings, highways, homes, cars, etc.

47. Activity Determine your own personal wealth