unit 1 economic principles. economics & scarcity chapter 18 & chapter 19.1 – objective...
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Unit 1
ECONOMIC PRINCIPLES
ECONOMICS & SCARCITY
Chapter 18 & Chapter 19.1 – Objective 7.01 7.02 7.03– Explain how scarcity forces us to make choices. Compare trade-offs & opportunity costs. Describe the basic factors of production & their impact on economic activities.
VocabularyEconomics
Study of how decisions are made when resources are limited
Scarcity Not enough resources to satisfy all of our desires
Needs Things required for survival
Wants Things we would like to have but don’t need for
survivalResources
Things used in making goods & providing services
SCARCITY IS THE FUNDAMENTAL ECONOMIC PROBLEM
Because of Scarcity we must answer 3 questions in economicsWhat to Produce?How to Produce?Whom to produce for?
Economic ModelsEconomy
All activity that affects production, distribution & use of goods & services
Economists use economic models to study the economy
They study past and present to predict the future
Based on assumptionsBusinesses & government make
decisions based on models
What is the fundamental economic problem?
1. Money2. Time3. Scarcity4. Economics
Trade Offs & Opportunity CostsTrade Off – Decision that must be made
when choosing between itemsOpportunity Cost – Value of the next best
alternative that was given up when an economic choice was made (Think Cost = $)Can be time or money as well
You always lose when faced with a trade offProduction Possibilities: The combinations
of goods and services that can be produced from a fixed amount of resources. (Guns vs. Butter or Computers vs. Food).
Assessment Activity: All economic questions and
problems arise from scarcity. Economics assumes people do not have the resources do satisfy all of their wants. Therefore, we must make choices about how to allocate those resources. We make decisions about how to spend our money and use our time. This activity will focus on the central idea of economics- every choice involves a cost.
Let's say you have five dollars. What would you like to spend it on? There are a million things you would love to spend five bucks on, but let's imagine there are only three things out there you really want to buy: gum, soda, and movie tickets. Look at the price chart to the right and answer the questions.
Good Price
Gum $ . 50
Soda $1.oo
Movie Ticket
$5.00
Questions:1. How many sodas can you buy instead of one
movie ticket?2. How many pieces of gum can you buy instead of
one soda?3. If buy 4 pieces of gum, how many sodas could
you have bought?
For example, if you go to the movies you have to give up a certain amount of gum and soda. If you are a sodaholic, you have to give up five sodas. If you are gum fanatic, you surrender ten packs of gum. But, the opportunity cost of a movie is not five sodas and ten packs of gum. It is five sodas or ten packs of gum.
Which of the following best describes scarcity?
A. Not enough goods for everyoneB. Not enough resources to provide every
desireC. Lack of desire to produce enough
resourcesD. The amount that people want
What is the opportunity cost of passing the Health Care Bill?
A. More people will have health care coverage.
B. Grandparents will be put to sleep because of Death Panels.
C. Obama will become the Devil and the Four Horseman will arrive.
D. The government will have less money to spend on other services like the military.
Production Possibilities CurveCurve shows the
different rates of production for individual or 2-good country.
Points on the curve are efficient.
Outside curve not possible due to lack of resources.
Inside the curve inefficient (2-good world could produce more)
Increase in food, decrease in computers
Production Possibilities CurveShows opportunity cost of producing 1 item and not the
other. As we produce more of one item, the opportunity cost
becomes greater because we are using resources not suited for making that item. – Must find a middle.
When individuals make decisions, the items they do not choose become:
A. opportunity costsB. human capitalC. goods & servicesD. needs
BUSINESS ECONOMICSChapter 18 section 2 & Chapter 19 section 1
All of the following are questions we must ask because of scarcity except:
1. When to produce?2. How to produce?3. What to produce?4. Whom to produce
for?
VocabularyGoods – Anything manufacturedCapital Goods = Factor Goods –
businesses use them to produce other goods or services
Consumer Goods = Final Goods – goods used by a consumer and not used to produce other goods to be sold
Service – Something someone does for someone else
Resources – anything used to make a good or provide a service – Same as Capital Goods
Natural Resource – anything from the earth used to make a good or provide a service
4 Factors of ProductionCapital
Money/resources used to start & continue a businessCan include Capital Goods
Natural Resources (also known as Land)Things that come from the earthIncludes land & energy
LaborHired workers to help in productionEarn money which they use to buy goods & servicesDivision of Labor – separating big jobs into small
onesEntrepreneurship
People willing to take risk in business (Decision Makers)
Plan & supervise production
All resources come from the earth
1. True2. False
A sewing machine to make Nike shirts would be placed in which factors of production?
A. LandB. LaborC. Entrepreneurship D. Capital
Business CostsFixed Costs
Expense is the same no matter how much is produced
Example - RentVariable Costs
Expense changes with number produced changingFixed Costs + Variable Costs = Total CostMarginal Cost
extra cost of producing one additional unit of outputMarginal Benefit /Revenue
additional benefit after all costs are accounted for producing one more unit
Cost Benefit Analysis economic model used to compare marginal costs &
benefits of a decision
Which economic term best explains a consumer’s choice of buying a new car or opening a savings account:
A. trade-offB. scarcityC. opportunity costD. comparative advantage
Considerations for BusinessesProductivity
Measure of the amount of output produced by a given amount of inputs in a specific period of time
SpecializationTakes place when people, businesses, regions &
countries concentrate on goods or services that they can produce better than anyone else
Examples – China and electronicsHuman Capital
Sum of the skills, abilities & motivations of people
ProductivityGoes up when more output can be
produced when scarce resources are used efficiently
Usually labor and human capitalIncreases when businesses invest in
human capitalIncreases with specialization
What is an example of a fixed cost of doing business?
1. Wages2. Cost of fuel3. Price of materials4. Rent on a building