Post on 03-Jan-2016
THE STUDY OF THE STUDY OF CHOICE!CHOICE!
WHAT IS WHAT IS ECONOMICS?ECONOMICS?
ECONOMICSECONOMICS is the study of how people use limited is the study of how people use limited
(scarce) resources to satisfy unlimited (scarce) resources to satisfy unlimited wants.wants.
People simply cannot have everything they People simply cannot have everything they need and wantneed and want
What is the difference between What is the difference between needsneeds & & wantswants??Needs Needs are necessary for survivalare necessary for survivalWantsWants are simply ways of expressing are simply ways of expressing
needs.needs.
So…. If our wants are unlimited, but So…. If our wants are unlimited, but they can’t all be satisfied because our they can’t all be satisfied because our resourcesresources are limited ….. are limited …..
What is a What is a resourceresource??anything people can use to make or anything people can use to make or
obtain what they wantobtain what they want
SCARCITY
Define “scarcity” --- and give an example. In economics, scarcity “not plentiful” Scarcity exists in 2 situations:
1. When resources are limited and human wants are unlimited
2. When a resource has more than one valuable use.
“Is it Scarce?” – partners, review examples, determine if “S” or “NS”
Scarcity and Abundance
Are NOT mutually exclusive How is it possible that scarcity & abundance can exist
together? For example, water……
It seems abundant in a large lake or river BUT it is still scarce.
Why? Explain. Widespread evidence of abundance, however,
may cause people to treat scarce resources as if they were not scarce What would this lead to?
“Are People Treating Resources as Scarce?” – partners, review examples, determine if “S” or “NS”
Assessment Check!Assessment Check!1.1. Which of the following statements is Which of the following statements is NOTNOT
consistent with the economic concept of consistent with the economic concept of scarcity?scarcity?
a)a) People are scarce because they have many People are scarce because they have many valuable uses in the world.valuable uses in the world.
b)b) Trash is scarce because you rarely see much of it Trash is scarce because you rarely see much of it around unless you go to a landfill.around unless you go to a landfill.
c)c) Knowledge is scarce because what we wish to know Knowledge is scarce because what we wish to know is so great relative to what we do know at this time.is so great relative to what we do know at this time.
d)d) Electricity is scarce because it has many valuable Electricity is scarce because it has many valuable uses.uses.
FACTORS OF PRODUCTIONFACTORS OF PRODUCTION The economic resources used by producers to make goods The economic resources used by producers to make goods
and services.and services. FACTORS OF PRODUCTIONFACTORS OF PRODUCTION::
LANDLAND = natural resources (land, mineral deposits, etc.) = natural resources (land, mineral deposits, etc.) LABORLABOR = human resources (physical & mental work) = human resources (physical & mental work) CAPITALCAPITAL = building, tools, equipment, machinery, $, = building, tools, equipment, machinery, $,
etc. used to make goods or provide servicesetc. used to make goods or provide services Human capital Human capital – knowledge & skills of workers (education, – knowledge & skills of workers (education,
experience)experience) Physical capital Physical capital – objects used to make goods/services– objects used to make goods/services
ENTREPRENEURSENTREPRENEURS = those willing to take the risk of = those willing to take the risk of forming or managing a businessforming or managing a business
Production of Production of GoodsGoods or or ServicesServices??
Factors of production are used to produce goods and services.
A good or service produced by the following?
Newspaper Publisher? Reporter? Google? Blockbuster?
TYPES OF GOODS
What type(s) of goods are these?
Consumer Capital Durable Non-durable
TRADE-OFFS & OPPORTUNITY COSTS
TINSTAAFL! Due to scarcity, there are alternatives & costs to
everything we do
TRADE-OFF: Act of giving up one benefit in order to gain another benefit (individuals, businesses, gov’ts all make them.) … the alternatives you have when you are making a
choice. In government…guns vs. butter
OPPORTUNITY COST: This is the next best, most desirable alternative that
you gave up – the one you did NOT choose What would be the opportunity cost of choosing to work 20 hours
per week while in high school?
Opportunity Cost
I Want Items A & B
Trade-Off Decision Need
I chose item A
I didn’t choose item B
Next best choicebut…
This is the
OpportunityCost
The Basic Trilogy of The Basic Trilogy of Economics:Economics:
1.1. ScarcityScarcity
2.2. ChoiceChoice
3.3. CostCost
Costs
PRODUCTION POSSIBILITIES CURVE
Is a graph typically used to show a business’ alternatives in production possibilities Compares possibilities & costs of different
categories of production
Used to illustrate the opportunity costs a producer has --- his “production possibilities frontier”
Governments go through the same process Classic “Guns” vs. “Butter” analysis i.e., defense vs. consumer products
I can produce this much of item A
more
more
Production Possibilities Curve
I can produce this much of item B
I can produce any combination of A and B inside or on this curve
more
more
Production Possibilities Curve
item A
item B
.(A,B)
. (A1,B1)
.(A2,B2)
.
.
Production Possibilities Curve
Chairs
Tables
100 300
300
150
350
400
(100,300)..(300,150)
What is the total # of tables possible to produce?What is the total # of chairs possible to produce?If I produce 100 chairs, how many tables can I produce?If I produce 300 chairs, how many tables can I produce?What is the opportunity cost in tables if I choose to produce 300 instead of 100 chairs?
Production Possibilities Curve
Chairs
Tables
As long as I am operating on curve, I am 100% efficient and using all my resources
. . ..
.
Production Possibilities Curve
Chairs
Tables
As soon as I fall inside the curve,I am inefficient – underutilization is occurring.
.100 300
100
300350
400
Production Possibilities Frontier
Chairs
Tables
I can’t produce out here. It’s beyondmy resources
.
.
Production Possibilities Frontier
Chairs
Tables
In order to produce out here, I would have todo something different. Like what?
.
•Add more people•Add more machinery•Enlarge my factory
.
Productivity/Efficiency
Most efficient use of scarce
resources – can be improved by: Division of Labor:
Organizing work so individuals do fewer tasks
Specialization: Proficiency at a task – can become more
proficient if have less overall tasks
Prime Example? Query: What is the greatest single factor for
improving the productivity of human capital? EDUCATION & TRAINING