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Welcome!Welcome!
Happy New Year!!!Happy New Year!!! This is a time of new beginnings with This is a time of new beginnings with
so many exciting things to do and so many exciting things to do and learn. So learn. So Welcome to Economics Welcome to Economics classclass! I am looking forward to a ! I am looking forward to a happy and productive semester. happy and productive semester.
I will be following the policies and I will be following the policies and procedures Mountain View has procedures Mountain View has established. established.
The Course at a GlanceThe Course at a Glance
The five units we will be covering include:The five units we will be covering include: Unit 1 – Foundations of Economics, Unit 1 – Foundations of Economics,
Trade, and SystemsTrade, and Systems Unit 2 – MicroeconomicsUnit 2 – Microeconomics Unit 3 – Money and Monetary PolicyUnit 3 – Money and Monetary Policy Unit 4 – Measurement and FiscalUnit 4 – Measurement and Fiscal Unit 5 – Personal Finance and Unit 5 – Personal Finance and
InvestingInvesting
Unit 1: Foundations of Unit 1: Foundations of EconomicsEconomics
What is Economics?What is Economics?
““A science that deals with the A science that deals with the allocation, or use, of scarce allocation, or use, of scarce resources for the purpose of resources for the purpose of fulfilling society’s needs and fulfilling society’s needs and wants.” – Addison-Wesleywants.” – Addison-Wesley
The study of how people seek The study of how people seek to satisfy their needs and to satisfy their needs and wants by making choices.wants by making choices.
What is Economics?What is Economics?
The big two concepts are that:The big two concepts are that: Resources are scarce!Resources are scarce! Society has unlimited needs Society has unlimited needs
and wants!and wants!Economics decides the “best” Economics decides the “best” way of providing one to the way of providing one to the otherother
ScarcityScarcity
Definition:Definition:A situation in which the A situation in which the amount of something amount of something actually available would not actually available would not be sufficient to satisfy the be sufficient to satisfy the desire for it, if it were desire for it, if it were provided free of charge.provided free of charge.
Scarcity vs. Shortage Scarcity vs. Shortage
Scarcity and shortage are NOT the Scarcity and shortage are NOT the same!same!
Scarcity implies limited quantities of Scarcity implies limited quantities of resources to meet unlimited wants.resources to meet unlimited wants.
Shortages occur when producers will Shortages occur when producers will not or cannot offer goods or services not or cannot offer goods or services at the current prices. at the current prices.
But this is America! Can’t we
have whatever we
want?
Imagine…Imagine…
I know you are so excited to be here! I know you are so excited to be here! Write 5 things you would rather be Write 5 things you would rather be
doing this hour. doing this hour. Put a star by the one you would pick Put a star by the one you would pick
first. first. This one choice is your opportunity This one choice is your opportunity
cost for being here. cost for being here.
Opportunity Costs vs. Opportunity Costs vs. Trade OffsTrade Offs
Opportunity cost is the most Opportunity cost is the most desirable alternative given up as the desirable alternative given up as the result of a decision.result of a decision.
This is the second best choice (the This is the second best choice (the best choice is your being here)best choice is your being here)
Trade-Offs are all the alternatives Trade-Offs are all the alternatives given up as the result of a decision.given up as the result of a decision.
ScarcityScarcity
Economists say that all goods and Economists say that all goods and services are scarce because the services are scarce because the factors of production are scarce.factors of production are scarce.
What are the factors of production???What are the factors of production???
Factors of ProductionFactors of Production
There are 4 factors that must all There are 4 factors that must all be used to produce anything:be used to produce anything: 1. Natural Resources (also 1. Natural Resources (also
referred to as “land”)referred to as “land”)
Factors of ProductionFactors of Production
There are 4 factors that must all There are 4 factors that must all be used to produce anything:be used to produce anything: 2. Labor – effort of a person for 2. Labor – effort of a person for
which they are paidwhich they are paid
Factors of ProductionFactors of Production
There are 4 factors that must all There are 4 factors that must all be used to produce anything:be used to produce anything: 3. Capital – human-made 3. Capital – human-made
resources used to create other resources used to create other goodsgoods
Factors of ProductionFactors of Production
3 Kinds of Capital3 Kinds of CapitalPhysical Capital – Also called Physical Capital – Also called Capital GoodsCapital Goods, objects that are , objects that are used to produce other goods used to produce other goods
Factors of ProductionFactors of Production
3 Kinds of Capital3 Kinds of CapitalHuman Capital – knowledge Human Capital – knowledge or skills workers get from or skills workers get from education and experience education and experience
Factors of ProductionFactors of Production
3 Kinds of Capital3 Kinds of CapitalFinancial Capital – money Financial Capital – money needed to begin production needed to begin production of a good or serviceof a good or service
Factors of ProductionFactors of Production
There are 4 factors that must all be There are 4 factors that must all be used to produce anythingused to produce anything 4. Entrepreneurship – person who 4. Entrepreneurship – person who
takes a risk in combining the other takes a risk in combining the other 3 factors to create a new good3 factors to create a new good
Making Economic DecisionsMaking Economic Decisions
Every decision we make Every decision we make involves involves trade-offs – trade-offs – alternatives that we must give alternatives that we must give up when we make a choiceup when we make a choice Example – “I could stay up for 3 Example – “I could stay up for 3
hours playing Halo, study, or hours playing Halo, study, or sleep.”sleep.”
But…
Does it have to be all or nothing?
Thinking at the MarginThinking at the Margin
Definition:Definition: Deciding whether to do or use ONE Deciding whether to do or use ONE
ADDITIONAL unit of some resource.ADDITIONAL unit of some resource.
Examples:Examples: Every bite of a meal is a choice for someone Every bite of a meal is a choice for someone
who is dieting.who is dieting. Smoking will cause cancer!Smoking will cause cancer! Studying for a better grade. Studying for a better grade.
Making Economic DecisionsMaking Economic Decisions The most desirable of the options The most desirable of the options
you pass up is called the you pass up is called the Opportunity CostOpportunity Cost
Rank sleep, studying, and playing video games 1st, 2nd, and 3rd on a list for what you value the most
Making Economic DecisionsMaking Economic Decisions 11stst Place is what Place is what
you would you would choose to dochoose to do
22ndnd Place is your Place is your opportunity opportunity cost (you give it cost (you give it up to do option up to do option 1)1)
Making Economic DecisionsMaking Economic Decisions
What other option do you have What other option do you have other than using 3 hours for one other than using 3 hours for one task?task?
You could split your time among You could split your time among multiple activities!multiple activities!
Thinking at the Margin – Thinking at the Margin – decision decision involving adding one unit and involving adding one unit and subtracting one unit, rather than subtracting one unit, rather than all or nothingall or nothing
Making Economic DecisionsMaking Economic Decisions
OptionsOptions BenefitBenefitOpportunity Opportunity
CostCost
0 hours 0 hours studying, 3 studying, 3 hours sleepinghours sleeping
F on TestF on Test NoneNone
1 hours 1 hours studying, 2 studying, 2 hours sleepinghours sleeping
C on TestC on Test 1 hour of sleep1 hour of sleep
2 hours 2 hours studying, 1 hour studying, 1 hour sleepingsleeping
B on TestB on Test 2 hours of sleep2 hours of sleep
3 hours studying3 hours studying B+ on TestB+ on Test 3 hours of sleep3 hours of sleep
Making Economic DecisionsMaking Economic Decisions
There is a point at which you are There is a point at which you are paying the same increase in paying the same increase in cost, but seeing lower benefitscost, but seeing lower benefits
You must make the decision as You must make the decision as to whether the cost is worth itto whether the cost is worth it
This same process is used by This same process is used by businesses and consumers to businesses and consumers to make decisionsmake decisions
Production PossibilitiesProduction Possibilities
Production Possibilities Graph Production Possibilities Graph – shows alternatives to what – shows alternatives to what an economy can producean economy can produceLet’s say we can produce 2 Let’s say we can produce 2 things: Guns and Butterthings: Guns and Butter
Production PossibilitiesProduction Possibilities
Production PossibilitiesProduction Possibilities
Production Possibilities Graph – Production Possibilities Graph – shows alternatives to what an shows alternatives to what an economy can produceeconomy can produce The outer red line shows the The outer red line shows the
maximum possible output with maximum possible output with any given combinationany given combination
This is the This is the Production Production Possibilities FrontierPossibilities Frontier
Production PossibilitiesProduction Possibilities
To move from To move from one point to one point to another, the another, the economy must economy must make decisionsmake decisions
The The opportunity opportunity costcost of making of making butter means butter means making less gunsmaking less guns
Production PossibilitiesProduction Possibilities
Any point along the line shows Any point along the line shows the economy operating at the economy operating at maximum efficiencymaximum efficiency
Any point below the line is Any point below the line is underutilization – underutilization – they are not they are not getting all that they couldgetting all that they could
Any point above the line is Any point above the line is presently impossible, until new presently impossible, until new resources are availableresources are available
Production PossibilitiesProduction Possibilities
Why does the graph curve Why does the graph curve instead of making a straight instead of making a straight line?line?Law of Increasing Costs – Law of Increasing Costs – as as production increases for one production increases for one item, amount needed as item, amount needed as tradeoff increases as welltradeoff increases as well
Production PossibilitiesProduction Possibilities
Every resource is best suited Every resource is best suited for certain types of goodsfor certain types of goods Farmland and cows make butterFarmland and cows make butter Metals and factories make gunsMetals and factories make guns To convert butter production to To convert butter production to
guns, you must sell the cows and guns, you must sell the cows and build new factories on the landbuild new factories on the land
OBJECTIVES 1.1
EXPLAIN why scarcity and choice are basic problems of economics
IDENTIFY land, labor, and capital as the three factors of production, and identify the two types of capital
EXPLAIN the role of entrepreneurs EXPLAIN why economists say all
resources are scarce
PROFILE – Gary Becker!
Read p. 7 about Gary Becker’s thoughts about the “marriage market”… hmmm… Then discuss with neighbor:
1. Do you agree or disagree that economics guides even life’s most personal decisions???
CFU…
1. Which of the following are factors 1. Which of the following are factors of production?of production? a. Capital and Landa. Capital and Land b. Scarcity and shortagesb. Scarcity and shortages c. Technology and productivityc. Technology and productivity d. economics and business decisionsd. economics and business decisions
2. Which of the following is an example of using physical capital to save time and money? a. hiring more workers to do a job? b. building extra space in a factory to
simplify production c. switching from oil to coal to make
production cheaper d. lowering workers’ wages to increase
profits
3. To what part of an industry does a 3. To what part of an industry does a worker’s education contribute?worker’s education contribute? a. technologya. technology b. physical capitalb. physical capital c. human capitalc. human capital d. scarce resourcesd. scarce resources
4. Which of the following is an 4. Which of the following is an entrepreneur?entrepreneur? a. a person who earns a lot of money as a a. a person who earns a lot of money as a
singer or dancersinger or dancer b. a person who creates a game and sells it b. a person who creates a game and sells it
to a game manufacturerto a game manufacturer c. a person who starts an all-organic cleaning c. a person who starts an all-organic cleaning
supplies business that employs otherssupplies business that employs others d. a person who works as a highly paid d. a person who works as a highly paid
computer programmercomputer programmer
5. What is the difference between a 5. What is the difference between a shortage and scarcity?shortage and scarcity? a. A shortage can be temporary or long-a. A shortage can be temporary or long-
term, but scarcity always exists.term, but scarcity always exists. b. A shortage results from rising prices; b. A shortage results from rising prices;
scarcity results from falling prices. scarcity results from falling prices. c. A shortage is a lack of all goods and c. A shortage is a lack of all goods and
services; scarcity concerns a single item.services; scarcity concerns a single item. d. There is no real difference between a d. There is no real difference between a
shortage and scarcityshortage and scarcity
6. What does an economist mean by 6. What does an economist mean by the term LAND?the term LAND? a. farmland onlya. farmland only b. food crops grown on farmland as well b. food crops grown on farmland as well
as the farmland itselfas the farmland itself c. goods and services that are produced c. goods and services that are produced
form the landform the land d. all natural resources used to produce d. all natural resources used to produce
goods and servicesgoods and services
Check your answers
1. a. capital and land1. a. capital and land 2. b. building extra space in a factory to 2. b. building extra space in a factory to
simplify productionsimplify production 3. c. human capital3. c. human capital 4. c. a person who starts an all-organic 4. c. a person who starts an all-organic
cleaning supplies business that employs cleaning supplies business that employs othersothers
5. a. A shortage can be temporary or long-5. a. A shortage can be temporary or long-term, but scarcity always exists!term, but scarcity always exists!
6. d. all natural resources used to produce 6. d. all natural resources used to produce goods and services!goods and services!