What is Economics?

Chapter 1.1

Needs and Wants

• A need is a basic requirement for survival and includes food, clothing, and shelter

• A want is a way of expressing a need and is NOT needed for survival

Kramer’s Needs and Wants

Kramer’s Needs

• Choc Milk

• Hand-Sanitizer

• Mommy

Kramer’s Wants

• Toys

• Toys

• And more toys….

TINSTAAFL

TINSTAAFL

• There is no such thing as a free lunch

• Costs will always exist, even if you think it is free

• Examples?

Goods vs. Services

• Goods are physical objects that someone produces

• Examples include food, clothing, and video games

Services

• Services are actions or activities that one person performs for another

• Hairdresser, photographer, teacher, lawyer, firefighter, etc.

Problem of Limits

• People’s needs and wants are unlimited, but goods and services ARE limited.

• This predicament creates scarcity

• Scarcity forces people to make choices

So what is Economics?

• Economics is the study of how people seek to satisfy their needs and wants by making choices

Scarcity versus Shortage

• Shortages occur when consumers want more of a good or service than producers are willing to make available at a particular price

• NOT the same as scarcity

• Scarcity ALWAYS exists, shortages do not

Examples of Shortages

Examples of Shortages

• What in the world was a Furby anyway?

• Iphone/Ipad

• New items during Christmas shopping season

Are Shortages a good thing?

• Do shortages benefit or harm companies?

Factors of Production

• Land

• Labor

• Capital

Land

• Refers to all natural resources used to produce goods and services

• Farmland, oil, iron, coal, water, forests

Labor

• Effort people devote to tasks for which they are paid

• Doctors, teachers, assembly line workers

Capital

• Any human made resource that is used to produce other goods and services

• Can be both physical capital and human capital

Physical Capital

• Human made objects used to create other goods and services

• Machinery, tools, construction equipment

Human Capital

• Knowledge and skills a worker gains through education and experience

• You are in class right now in order to increase your human capital

• Main reason why people go to college

Entrepreneurs

• Entrepreneurs are people who decide how to combine resources to create new goods and services

• Start own businesses to provide a good or service

• They are risk takers

• Consumers of the factors of production

Opportunity Cost

• Chapter 1.2

Every Decision has a Cost

• We cannot do two things at once, therefore we must give up something when we make decisions

• Do not confuse the idea of trade-offs and opportunity cost

Tradeoff vs. Opportunity Cost

• A tradeoff is the act of giving up one benefit in order to gain another, greater benefit

• For instance, you can’t play both football and tennis for PHS

Government involves tradeoffs

• “Guns or Butter”

• Spending money on “guns” refers to money devoted to the military

• Spending money on “butter” refers to money devoted to domestic needs

Opportunity Cost

• The most desirable alternative given up when you make a decision

• If you didn’t decide to do _______, you would have done _______.

Thinking at the Margin

• Process of deciding whether to do or use one additional unit of some resource

• This is when you decide how much more or less to do

Cost/Benefit Analysis

• In order to do this, you must understand the role of marginal costs and marginal benefits

• Marginal cost is the extra cost of adding one unit

• Marginal benefit is the extra benefit of adding the same unit

Example

• Do the benefits of sleeping in one extra hour outweigh the costs?

• As long as the marginal benefits exceed the marginal costs, you will make that decision

Discussion

• What marginal costs and benefits might a business owner have to consider when trying to decide whether to hire one, two, or three additional workers?

Answer

• Must consider how much added output each worker would provide, compared to the cost of added wages

• Again, if the benefits outweigh the costs you will continue to hire more workers

Assignment

• Page 12, #3-10

1.3: PPC Curves

PPC Curves

• A graph that shows alternative ways to use an economy’s productive resources

• Used to compare two separate goods and services