Economics Warm Up

• Create your own definition of economics

• Make a list of what you think are essential economics ideas

Economics 7.01: Intro to Economics

Ch. 18.1

I. Factors of ProductionResources used to make all

goods and servicesA. Land- includes all

natural resourcesB. Labor- is the effort for

which someone is paid1. White collar workers-

high skilled office work2. Blue collar workers- low

skill manual labor

C. Capital- any human-made resource to invest to produce goods or services

1. Physical capital- buildings, tools, machines, etc2. Human capital- knowledge and skills a worker

gains through education and experience

D. Entrepreneurs- risk-takers who decide how to combine other factors of production to create new goods and services

Name that Factor of Production1. Bill Gates2. Oil3. Going to school4. Hammer5. The night shift at

McDonalds

6. A forest7. 10 years experience

teaching8. Paper factory9. $100010. A 10-year old at a

lemonade stand

• Create your own definition of economics• Make a list of what you think are

essential economics ideas

II. Scarcity and ChoiceA. Needs and Wants

1. Need- something necessary for survival

2. Want- desire not necessary for survival

3. Consumption- consuming or use of economic goods

B. Economics- the study of how people seek to satisfy needs and wants with limited resources

C. Consumer sovereignty1. power of consumers to decide what gets produced2. producers meet demands or go out of business

Pizzeria Madness

1. What resources in this activity were plentiful and what were scarce?

2. What was the best strategy to win this activity? 3. Explain how this activity emulates the

definition of economics.

III. Scarcity

A. Goods and Services1. Goods- physical objects2. Services- actions or activities that one

person performs for another

B. Scarcity- 1. limited quantity of a resource to meet

unlimited wants2. This is the driving force of economics

Warm-Up• What is the difference between

physical capital and human capital – give an example of each.

• What are the four factors of production?

• How does consumer sovereignty affect the businesses of Coke and Pepsi co.?

D. Entrepreneurs- risk-takers who decide how to combine other factors of production to create new goods and services

Name that Factor of Production1. Bill Gates2. Oil3. Going to school4. Hammer5. The night shift at

McDonalds

6. A forest7. 10 years experience

teaching8. Paper factory9. $100010. A 10-year old at a

lemonade stand

11. Create your own definition of economics

Be an Entrepreneur…State the following:• What your product is.• How you will sell it.• Where you will get the resources from.• What people would be interested in your product?• How you will pay to start up this business.• What kinds of physical capital will you need?• What kinds of human capital will you need?• The name of the product.• The logo design.

Economics 7.2-3: “Trade-offs and Costs”

Ch. 18.2

I. Trade-offs

A. Trade-off- the process of giving up one desire in order to satisfy another desire

1. Ex: video game vs. give girlfriend a present2. Ex: 2 more hours of sleep vs. going to movie

premier

Read p. 508-5091. What two factors are taken into account in a

cost-benefit analysis? Looking at the graph on page 508, at what point should the farmer stop farming more acres?

2. Define diminishing marginal benefit. Why does marginal benefit diminish with increases in quantity?

B. Opportunity cost- value of what is given up in a trade-off

1. Ex: Dating- cost is not dating some other person

2. Ex: College vs. working- cost is $ of college and amount of $ gained from working

C. Immediate gratification- when you give up something in the long-term to satisfy an immediate want

Pizzeria Madness

1. What resources in this activity were plentiful and what were scarce?

2. What was the best strategy to win this activity? 3. Explain how this activity exemplifies the

definition of economics.

II. Calculating costs

A. The total costs of any business includes both fixed and variable costs

B. Fixed cost- cost that does not change regardless of output (ex: rent, labor)

C. Variable cost- cost does go up or down depending on output (ex: supplies)

Be the Boss

Come up with your own business. 1.Explain the factors of production that are used

in the development of your business. 2.Are you providing goods or services? 3.What are the fixed costs of your business?

What are the variable costs? 4.What trade-offs are there to consider in the

running of your business? What are the opportunity costs of those trade-offs?

Warm UpWhat is an opportunity cost in the following

scenario?• Going to a Movie vs. Buying a mother’s day giftWhich is the variable cost and which is fixed? • You have a rent of $500.00 a month and your food

supply costs for your restaurant fluctuate between $200 and $600 depending on the time of year.

Think Ahead: What is the marginal cost of the 11th calculator?

• If I pay $500.00 for 10 calculators, and I pay $520.00 for 11 calculators.

III. Marginal Costs and Benefits

A. A cost-benefit analysis allows a producer to know when to stop production

B. You must first figure out marginal (one additional) cost- the price of producing one additional unit

1. Ex: it takes $20 to produce 10 toy carsWhat is the marginal cost of producing one more car? $20/10 cars= $2 per car

C. Marginal Benefit1. The benefits of each item produced usually goes down

with each item produced: the more produced, less it is worth

2. Marginal benefit- additional benefit of each additional unit produced

Ex: The first 10 toy cars sell for $30the next 10 toy cars sell for an additional $15

20 toy cars sell for $45After the first 10 toy cars, what is the marginal benefit of each toy car produced?

First 10- $30/10= $3 benefitNext 10- $15/10 =$1.50 benefit

Number of pizzas Cost Benefit

1 $10 $15

2 $20 $29

3 $30 $42

4 $40 $54

5 $50 $64

6 $60 $72

7 $70 $78

8 $80 $82

9 $90 $83

10 $100 $81

$0

$20

$40

$60

$80

$100

$120

Numberof

Pizzas

Cost

Benefit

Number of pizzas Cost Benefit

1 $10 $15

2 $20 $29

3 $30 $42

4 $40 $54

5 $50 $64

6 $60 $72

7 $70 $78

8 $80 $82

9 $90 $83

10 $100 $81

Number of pizzas

Marginal Cost

Marginal Benefit

1 $ $

2 $ $

3 $ $

4 $ $

5 $ $

6 $ $

7 $ $

8 $ $

9 $ $

10 $ -$

Number of pizzas

Marginal Cost

Marginal Benefit

1 $ $

2 $ $

3 $ $

4 $ $

5 $ $

6 $ $

7 $ $

8 $ $

9 $ $

10 $ -$

($4)

($2)

$0

$2

$4

$6

$8

$10

$12

$14

$16

Numberof

Pizzas

Marginal Cost

MarginalBenefit

Number of IPads Cost Benefit

1,000,000 $300 $500

2,000,000 $600 $980

3,000,000 $900 $1430

4,000,000 $1200 $1855

5,000,000 $1500 $2255

6,000,000 $1800 $2605

7,000,000 $2100 $2930

8,000,000 $2400 $3230

9,000,000 $2700 $3520

10,000,000 $3000 $3770

Review•When should Apple stop producing Ipad’s?•What is cost-benefit analysis?•What is the purpose of finding the marginal benefit of production?

Number of iPad’s

Marginal Cost

Marginal Benefit

1 $300 $ 500

2 $300 $ 480

3 $300 $ 450

4 $300 $ 425

5 $300 $ 400

6 $300 $ 350

7 $300 $ 325

8 $300 $ 300

9 $300 $ 290

10 $ 300 $250

Economics 7.04-5:Maximizing Production

I. Specialization

A. Division of Labor- assigning small number of tasks to each worker

B. Specialization- workers focus on one activity only, allows them to work faster and more efficiently

II. Labor and OutputA. Marginal Product of Labor-

change in output from hiring one additional worker

B. Increasing Marginal Returns- increase return for workers

1. If there are three tasks in creating a product, MPL increases for each worker hired

2. Specialization increases per worker hired

C. Diminishing Marginal Returns- decrease return if too many workers

1. after first three workers (one for each task), benefits of specialization end

2. adding more workers increases total output but at a diminishing rate

3. MPL decreases as number of workers increases

Number of workers

Output (pizzas per hour)

Marginal Product of

Labor0 0 -

1 4

2 10

3 17

4 23

5 28

6 31

7 32

8 31

D. Law of diminishing returns: the more you have of something, the less useful it is

Ex: the more workers you hire, because of DMR, at some point each additional worker will add less output than the worker added before