Vocabulary

Variable Cost- Costs that change depending on how many products are produced.

Fixed Cost- Costs that stay the same no matter how many products are produced.

Incentive- Rewards or penalties people receive for engaging in more or less of an activity.

Marginal Cost- Cost of producing 1 more unit of output.

What happens to the cost of an item when it is scarce?

Why is it that we must make economic choices?What is a trade off?Explain how to identify opportunity cost?What is a benefit in regard to economic decision

making?What is the goal of producers?What is the goal of consumers?How do producers come up with a price?What businesses or industries are is the State of

NC known?

Warm Up

What kinds of things do producers have to pay for? Think of the Factors of Production to help yourself answer the question.

Answer Me! Oh, please won’t someone answer me!

1. Items that are scarce will likely be which of the following?

A. Cheap B. ExpensiveC. A renewable natural resourceD. An opportunity cost

Opportunity Cost

In order to run a business producers must meet the costs of the factors of production.

Immediate Gratification

Products (whether it is a need or a want) provide people with immediate gratification. People receive

immediate benefits from purchasing the product.

Variable costs Costs that vary when the amount of

products produced changes. Water, ice, sugar, and lemons ($60)

Fixed costs Costs that do not change regardless

of how many goods are produced Lemon squeezer, several large

pitchers, a stirring spoon, a cooler to keep the lemonade cool, and the lemonade stand itself. ($80)

Total costs Variable costs + fixed costs = total

cost Total cost = $140

Costs

To make money This is called an

Incentive Incentives motivate

producers and consumers to take action

Ex: A producers sells something to make money, an incentive for a consumer to take an economic action would be a sale…Ex: 50% off

Why do producers decide to sell something?

A producer will always have an incentive to sell one more unit if the cost of one more unit is less than the price of one more unit.

Marginal Costs Cost of producing 1 additional

unit of output. Suppose total cost to produce 120 glasses of lemonade is $140, and $140.50 to produce 121 glasses of lemonade. The marginal cost is…

.50 cents

Incentives

Marginal benefit The amount of benefit that you get from selling more or

less. Your benefit can go down if you sell more…let’s see how

In order to see you must create a cost-benefit analysis graph To create a graph you must compare the marginal costs and

marginal benefits of your decision. A cost-benefit analysis is an example of a economic model

Do you remember what the problem is with economic models?

Based on assumptions

Wages & Salary

Wages Payments made by

producers in exchange for one’s labor and time for the production of goods and services. Generally tied to amount

of hrs. worked

Salary A set amount that the

producer agrees to pay a laborer that is not tied to hours or specific production.

reflection

What is the difference between variable costs and fixed costs?

What is the goal of producers?What is the incentive for producers to sell?What is marginal cost?What is the name of the economic model

that compares the marginal costs and marginal benefits?

What is the problem with cost benefit analysis?

Activity

Pair up and go to the following website: http://www.econedlink.org/lessons/index.cfm?lesson=EM260

Activity

Create your own business.After you have created your business plan and

incentives answer the following questions on a separate sheet of paper:1. Why is it better to have more positive “green” than

negative “red” incentives in your business plan?2. How might this help your business to succeed?3. How might it be different to be motivated by

negative incentives than positive incentives?Partner with another group and discuss which

incentives would be most effective and which would not. Write your names and responses on the separate sheet of paper and hand it in.

Closing?

What is an incentive?