What is Economics?A. What is the Basic Problem in Economics?

Think of a project you have done for school:• What subject was it for?• What materials did you use?• Who did the work?• Did you use tools to create the project?• How did the project turn out?

Remember:

• Economics is the study of how societies use limited resources to fulfill wants and needs

Want Need

Class discussion:

• Can everyone have everything they want of need?

• What do they have to do?

Remember:

• Businesses must make choices about what to produce and when to produce• Societies must make choices about how to use resources• This is the focus of ECONOMICS!

Class discussion (small group)

• What are resources?

• Do we have an unlimited supply?

Remember:

• Everything that exists is limited• People have competing uses for these resources• This creates scarcity: not enough resources to satisfy every need or

want = basic problem of economics

Class discussion:

• How do you get the things you want or need?

• How can we fix scarcity?

Remember:

• Societies and businesses use Factors of Production: resources needed to make goods or provide a service:• Land: Natural resources, land, water, metal (ore), etc.• Labor: everyone who produces goods and services• Capital: goods used to make goods and services• Entrepreneurship: willingness and ability to take a risk in business• Technology: use of science to develop new goods and methods to increase

productivity: ability to produce goods and services in better and faster ways

Quiz 1

B. Trade OffsWhat are we willing to give up?

You want the latest and greatest next big thing.• But, it cost A LOT more than you can afford. What could you do to

satisfy your “want” for the item?• Give up lunch and save up $• Give up time with friends to get a part time job?• Give up or pawn off your possessions? Which ones?• Other? Explain (keep it legal!)

Remember

• The choices we make affect our lives• A trade off is exchanging one thing to get the use of another• The cost of getting or doing one thing instead of another is called

opportunity cost (what you give up)

Class discussion: small groups

Your Decision: Wake up early? Sleep late

Benefits

Disadvantages

Opportunity costs (or benefits

Foregone, what you give up)

Remember:

• Many businesses produce more than one type of product• They make trade-offs and have opportunity costs in order to decide what

combination of goods to produce• Economists use a production possibilities curve to show how much goods

and services can be produced from a set amount of resources in a “specific period of time”• The Production possibilities curve helps a business decide how much of

each item to produce and what their trade offs and opportunity costs will be• Gov’ts often have to decide how much of a nation’s resources should be

devoted to military and civilian goods production (guns v. butter)

Activity

1 2 3 4 5 6 70

1

2

3

4

5

6

7

Hours spent studying v. hours spent working

hours spent studying

Remember:

• When you decide how much or less to do you are thinking on the margin

c. Why do we need economists anyway?

Dating is pretty popular among teens. Could it be considered an economic activity?• Some economists (like Nobel-prize-winning economist Gary Becker)

do. They consider it part of the “marriage market”• Why would marrying the 1st person you date have high opportunity costs?• So what do you do to lower the opportunity costs?• When does the search stop? (in economic terms)

Remember:

• An economy is all the activity that affects production, distribution, and use of goods• Economists study the economy by forming theories and gathering

data• Their theories are called economic models (if this happens, then that

will happen) an economic model is a scaled down model of world events

• Economists test solutions to economic problems by using the models• Businesses and governments depend on the results to show economic

behavior• A productions possibilities curve is an example of an economic model• Economic models do not show every detail of “real world economics”

because there are so many unpredictable variables• Economists test their educated guesses, hypothesis, to see if it works

in the model

Class discussion:

• What unpredictable things might make an economic model ineffective?

Remember:

• Economists deal with facts• Sometimes personal beliefs influence how they think about those

facts• Some economists do not agree with each other• Economists do not determine whether predictions are good or bad

because that depends on one’s values• Values are beliefs and characteristics that are considered important

See student activity 3

Quiz 3

• Review notes and guided readings….test tomorrow!