On a small sheet of paper, write down the word Next, write down what you believe is the definition of On a Piece of Paper, write the definition of economics. Fold the paper. Do not include your name. Economics The Study of the satisfaction of our unlimited wants with the reality of our limited resources. Scarcity Economics is the social science concerned with the problem of using scarce resources to attain the greatest fulfillment of societys unlimited wants. TINSTAAFL Is it Too Good to Be True??? TINSTAAFL Scarcity = the #1 economic problem SO. We need to use our resources carefully Economic Scarcity = #1 Economic Problem Limited Desirable Useful, has utility Liver Transplants Costs $200,000 Should everyone with liver disease get a transplant, regardless of their ability to pay? Young patient vs. Senior Citizen? 'He deserves a second chance' Mom of teen denied heart transplant: 'He deserves a second chance' - TODAY.com Mom of teen denied heart transplant: 'He deserves a second chance' - TODAY.com Will he follow through with change in lifestyle?? Does it matter? Premature Babies We can save babies weighing less than 1,000 grams. High probability of handicapped conditions. Should we take extraordinary measures to save them? OK Scarcity is important. Because we don't have unlimited time, I can't talk forever on any subject, no matter how important it may be. I have to make choices about how I spend my lecture time. *** Because of that, I don't want to spend too much time talking about scarcity itself. I think my time would be better served talking about other concepts. "And now you know scarcity!" Yoram Baumann's summary of Mankiw's principles. "Choices are bad" "Choices are really bad." Principles of economics, translated - YouTube Principles of economics, translated - YouTube 4 Factors of Production 1.Land 2.Labor 3.Capital 4.Entrepreneurship Levi Strauss & Company Levi Strauss & Co. is privately held by descendants of the family of Levi Strauss. Shares of company stock are not publicly traded. Shares of Levi Strauss Japan K.K., the Japanese affiliate, are publicly traded in Japan. Levi Strauss & Co. Employ 10,000 worldwide, including approximately 1,010 at the San Francisco, California Headquarters. 4 Factors of Production St. Louis Podcast St. Louis Fed | Education Resources | For Students | PodcastsSt. Louis Fed | Education Resources | For Students | Podcasts 2 Additional Class Rules 1. All decisions must be moral. 2. All decisions must be legal. Rational Behavior Rational self-interest entails making decisions to achieve maximum fulfillment of goals. Is this person Rational? Remember the Definition Rational self-interest entails making decisions to achieve maximum fulfillment of goals. All Decisions Are Rational? Rational Behavior,,, ugh All Decisions Are Rational.. Opportunity Costs What is the opportunity cost of this decision? Whats the opportunity cost here?? What about the bad guys? Freedom Fighters Whats wrong with this?? Opportunity Cost??? = getting the rebate includes the cost of the stamp and envelope, plus the time it takes to fill out the form, cut out the UPC code, get a copy of the receipt, address an envelope, and mail it off. For most of us, that cost is greater than $1. Opportunity Costan_video_mov/opp_cost.movan_video_mov/opp_cost.mov Opportunity Cost Podcast St. Louis Fed | Education Resources | For Students | Podcasts St. Louis Fed | Education Resources | For Students | Podcasts Opportunity Costs The next best thing. Only 1. Trade offs = Opportunities given up when one course of action is taken. Many Trade Offs Spiderman or Cinderella??? Comparative Advantage Krugmans Microeconomics for AP Marginal Cost & Marginal Benefits One more unit Demand Curve as Marginal Benefit Curve | Microeconomics | Khan Academy MB = MCan_video_mov/berries_margcost.movan_video_mov/berries_margcost.mov Marginal Cost = The increase in variable costs that stems from producing one more unit of output. Profit- Maximizing = MC=MB MC = MB Should another worker be hired? Do you ever go through a Traffic light yellow --- red?? Why?? MC is less than or = MB Do you ever go through a Traffic light yellow --- red?? Should I buy one more CD? Should I take one more AP Class? Should I work one more hour on Econ??? How close do you stand to a FIRE ? Ever been to a Terrible Movie? GIGI Glitter Snakes On A Plane Did you stay???? Why? Sunk Costs Marginal Benefit must = or Exceed Marginal Cost!!!!!!! Or we would not make it because we are rational. 4 Economic Questions 1. What to Produce? 2. For Whom to Produce? 3. How to Produce ? 4. How will the System accommodate Change? Creative Destruction A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." Investopedia explains 'Creative Destruction' Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. Creative Destruction Schumpeter goes so far as to say that the "process of creative destruction is the essential fact about capitalism." Buzzword for the 90s The dotcom boom (and bust) overused this, with nearly every technology CEO talking about how creative destruction would replace the old economy with the new. Examples??? Creative destruction occurs when something new kills something older. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. Your Examples: Phone Booth Why do we study Economics? Hmm? Lots of Reasons Politics, Professional & personal applications FRB: Speech-- Bernanke, Financial Education-- August 7, 2012FRB: Speech-- Bernanke, Financial Education-- August 7, 2012 Business Decisions Good Use of Limited Resources & You will become Better Decision Makers Decisions like Vote on November 6 TINSTAAFL True Or False Tell me what is It doesnt cost anyone, anything! Go to$25. Free Gift Card at Wal-Mart ?? Totally Free Free Gas?? Who knew? Scientific Method is used Observation of facts Hypotheses Testing of Hypotheses Determination of theory, law, principle, or model Ceteris Paribus Assumption Other things equal Remember this term, Use it often on Free Responses Micro Economics = The individual, the individual business, specific economic units This class. Macro Economics Looks at the big picture Positive vs. Normative Econ Positive = Avoids Value Judgments Normative = Involves Value Judgments = Bias Use Positive Econ Only. Just the Facts Man.. Definitive SiteDefinitive Site = Analysis, tested, proven The unemployment rate in Tennessee was 10.8 % in July 2009. Normative Economics What ought to be The unemployment rate is too high in Tennessee. Production Possibilities Curve Full Employment + Full Production The PP Curve Production Possibilities Curve is a very important, simple economic tool. 2 Assumptions: **** Remember These 1. Full Employment 2. Full Productivity ( Super, Most, Efficient, Best Use of Those Scarce Resources) Assumptions Economy only produces 2 products. # 1. Full Productivity # 2. Full Employment #2. Full Employment = The Economy is using all available resources Efficiently. Everyone who wants a job, has a job. 5% or less Unemployment Full Production = All resources used for production should contribute to the maximum satisfaction of societys wants. Implies both Allocative & Productive Efficiency. PPC Computer Lab You practice with PPC Robots & Pizza Production Possibilities Curve | EconEdLink Production Possibilities Curve | EconEdLink PPC Guns & Butter Theory If all resources are being fully used, the business or government may produce 2 goods on the production possibilities curve. Guns Butter Military Consumption goods Capital Consumption If the PP shifts outward This is GOOD! Capital Consumption If the PP shifts inward This is BAD!! Capital = Define it!! An Investment in the future Including Human Capital = You! Consumption = It is Used up! Gone. So what shifts the PP outward? 1. increase the productive labor force. 2. increase the quantity and quality of natural resources. 3. increase the quantity and quality of capital. 4. increase health and education. 5. increase technology. : 6. increase research and development. 7. decrease input costs (business costs). 8. decrease business regulations. 9. decrease business taxes. If you remember :PERT You will know the PP Curve P = Productivity E= Education / Health R = Resources T = Technology/ Trade/ Taxes WWII & The USA What does the PPC look like? During the War? What does the US need to enter the War? After the war? GI Bill Eisenhower Interstate System 1960 Election & Goal We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard." To the Moon We Go! Estimated Cost of Nasa Project $25.4 Billion (1969 dollars) $145 Billion (2007 dollars) There were a total of 17 Apollo missions between January 1967 and December of 1972 and of those 17, the first six were unmanned. SPACE RACE & PPC Economic Benefits of NASA NASA - NASA's Economic Impacts in the U.S. NASA - NASA's Economic Impacts in the U.S. Draw the PPC from Illustrate the different points on the PPC Illustrate JFKs Goal Explain the changes Explain and illustrate the impact of these changes Capital Consumption Japan 1941 What capital goods did Japan produce in 1940? umbrellas for cocktail drinks What consumption goods did it produce? rice What did Japan do on December 7, 1941 ? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What did the U.S. do to Japan for this dirty deed? morning of August 6, :02 am, August 9, 1945 Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What do you think happened to Japans productive labor force? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What do you think happened to the quantity and quality of its natural resources? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What do you think happened to the quantity and quality of its capital stock? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What do you think happened to its health and education? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What do you think happened to its technology? Capital Consumption Japan 1945 umbrellas for cocktail drinks. rice What happened to Japans PP? umbrellas for cocktail drinks. rice PPF Production Possibilities Curve | EconEdLink #1. Productive Efficiency Means the least costly production techniques are used. Allocative vs. Productive Efficiency Allocative = resources are used for producing the goods & services that society most wants. Choices will be necessary Education or Cruise? Production Possibilities Points on the curve represent maximum possible combinations of schools & travel cruise packages Points inside the curve represent underemployment or unemployment Points outside the curve are unattainable at this time. Shifts of Production Possibility Productivity Education Resources Technological Advances Trade & Taxes Cut Todays Decisions impact Tomorrow= PERT Productivity Education, training + Health Care Resources used efficiently Technology + Trade Goods & Services Goods = tangible items Durable Goods = life of 3 years or more = Appliances The Decline for orders of Outlook for 3rd quarter darkens as durable goods orders tumble - NBC News.com Outlook for 3rd quarter darkens as durable goods orders tumble - NBC News.com durable and capital goods suggested manufacturing will probably not bounce back as quickly as many economists had expected after hitting a speed bump early in the year. Non Durable Goods Last less than 3 years Paper, backpacks, clothes, food, Worth = Value = worth expressed in dollars & cents= the price someone would pay for an item = $$$$$ Utility = the capacity to be useful satisfaction gained from using the product Wealth- the sum of the economic products that are tangible, useful, valuable, & transferable from one to another Paradox of Value The Value of Items may not be associated with their value for life or survival. How the World Turns Interdependence ---- Connected Circular Flow Model 2 Groups of Decision Makers Households & Businesses The Market coordinates the decisions. Households Demand G&S $ Firms Supply G&S $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Demand Resources Land, Labor, Capital, Entrepreneurship resources Supply Resources Resource Market Product Market Households Demand G&S $ Firms Supply G&S $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Demand Resources Land, Labor, Capital, Entrepreneurship resources Supply Resources Households Demand G&S $ Firms Supply G&S $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Demand Resources Land, Labor, Capital, Entrepreneurship resources Supply Resources Resource Market= Factor Inputs Households sell resources Businesses buy resources Resource Market = Wages & Q Factor Market = Input = resources Families own the 4 Factors of Production, Land L_____, C_______ & E________ Product Markets = Output Ps & Qs Households buy goods & services Absolute Advantage Gilligans Island Episode 34: Comparative Advantage & Trade Episode 34: Comparative Advantage & Trade - YouTube Episode 34: Comparative Advantage & Trade - YouTube Product Market Businesses are on the selling side, offering products for sale Interaction of the buyers & sellers determines the price of each product Importance = Interdependence How money flows through the systems.. Limitation Does not depict transactions between households & between businesses. Ignores Government & rest of the world Does not explain how prices of products are actually determined.