What is Economics?Chapter One

TINSTAAFL What do these letters stand for?

THERE IS NO SUCH THING AS A FREE LUNCH

The more a business gives away for “FREE” it must make up for by charging higher prices for other items

Free? Think of an example of a supposedly

“free” item that you see everyday. Explain why the item is not really free

by stating who or what actually pays for it.

Answer the question…If you could make a small change in your daily routine that would save you time and money, would you make the change?Why or why not?

Define Scarcity…

Scarcity… the fundamental economic problem…

…the condition that arises because society does not have enough resources to produce all the things people would like to have.

SCARCITY

Unlimited Wants Limited

resources

Is scarcity caused by a shortage of money??

Warm Up #11 - Scarcity How does scarcity affect your life? Provide several examples of items you

have had to do without because limited resources could not keep up with your wants.

4 Factors of Production Resources used in the production of

goods and services1. Land 2. Labor3. Capital4. Entrepreneurship

LAND “gift of nature” or natural resources Resources no created by human effort Limited in supply

CAPTIAL Tools, equipment and factories used in

production Financial capital- money used to buy

tools and equipment for production

LABOR People with all their efforts, abilities,

and skills. All people involved in production except

entrepreneurs (owners) The amount of this resource

can vary over time

ENTREPRENEURSHIP Entrepreneur: a risk-taker in search of

profits Driving force in the American economy Their initiatives combine other 3 factors;

land, labor and capital

Warm Up #13 – 9/22/14Create a product or service… You must list one example of each

factor of production you will need to create your product or service.

Diamond Ring Land: Diamond Capital: diamond cutter/polisher Labor: Gemologist Entrepreneurship: Diamond distributor

Three Basic Questions… are used by society to decide how to

best use limited resources

1. What To Produce?2. How To Produce?3. For Whom to Produce?

WHAT TO PRODUCE?? Should society produce more consumer

goods like clothing and food or military equipment like airplanes and submarines? GUNS v. BUTTER

Society cannot produce enough for all wants so it must decide…

HOW TO PRODUCE?? Most efficient, cost effective way to

produce goods/services Assembly line v. less equipment more

workers Which is better?

FOR WHOM TO PRODUCE? How will produced items be allocated? Pricing, location and availability usually

determine who while receive these items

BMW automobile? Low-income housing? Old Navy jeans?

ECONOMICS the study of how a society produces,

distributes and consumes its limited resources with unlimited wants.

WARM UP #14- 9/23/14Write a brief description of the American economic system as YOU see it using the concepts of :SCARCITY FACTORS OF PRODUCTION 3 BASIC QUESTIONS.

Trade-offs and Opportunity Costs

What’s wrong with this picture?

What’s wrong with this picture?

What’s wrong with this picture?

Trade-offs Alternative choices when spending your

income or time.Alternatives CRITERIA

$75 or Less?

Durable? Will Parents approve?

Can use any time?

Several CDs yes yes yes no

Concert Tix no no maybe no

Soccer Ball yes yes yes no

Jeans yes yes yes yes

Opportunity Cost The cost of the next best alternative use

of money, time or resources when one choice is made rather than another.

Example: based on earlier chart Chose jeans so not enough money left for

next best option – soccer ball Opportunity cost of jeans was soccer ball

Warm Up #15- 9/24/14 Explain trade-off and opportunity cost in

your own words and then give an example.

Create your own … Decision Making Grid Must determine 3 alternatives and total

amount of money you can spend along with 2 other criteria…Alternatives

Criteria

$___ or less ?? ??

1.

2.

3.

Determine your choice and the opportunity cost of your choice.

Warm Up #16 – 9/26/14If the United States was in the midst of a large scale war, how might the government decide to allocate(use) its resources? More consumer goods (butter) or military goods (guns)?Explain your answer.

Production Possibilities Frontier A diagram representing various

combinations of goods and/or services an economy can produce when all resources are fully employed.

Using the same materials/resources, the company needs to decide how much production should go to boats and trucks.

Guns & Butter Example

Trucks v. Boats when all resources are fully used

What three points illustrate all resources are fully used?

What point shows resources under used?

What point shows production greater than resources?

Opportunity Cost? Unfortunately, the

company had to layoff workers. Point D represents the less number of workers…so the opportunity cost is less workers is 5 less boat per year.

Create your own… Production Possibilities Frontier for a

textile company that produces jeans and t-shirts.

Jeans T-Shirts

100 40

75 60

50 70

25 100

0 120

Opportunity Cost? What is the opportunity cost of

increasing production of 20 more shirts? ( Hint: how many less jeans?)

Explain… How opportunity cost is involved when

resources are shifted from the production of one good to another.

HOMEWORK: In your notebook, create a list of 50 things

you find in your home. Please diversify.

Basic Economic ConceptsChapter one Section three

Needs v. Wants Take out list of 50 items from your home

and determine which items you NEED and which items are NICE to a have.

What is a NEED v. a WANT? Need: basic requirement for survival Want: a means of expressing a need

Ex. Food is a need but pizza is a want.

Warm Up #17 – 9/29/14Review your Journal and be sure you have correct entries for the following warm-ups…#11- Think about a “free” item that you see everyday. Explain why this items is not really free…#12- How does scarcity affect your life? #13- List one example of each factor of production?#14- Write a brief description of the American economy using concepts of SCARCITY, FACTORS OF PRODUCTION, 3 BASIC QUESTIONS.#15- Explain trade-off and opportunity cost in your own words along with an example.#16- If US in large scale war, more guns or butter? Explain.

Economic System An organized way of providing for the

wants and needs or their people

Three major types of Economic systems: Traditional Economy Command Economy Market Economy

Create the chart in your notebook and use pages 33-37 to fill it in…

Traditional Command Market

Strength

s

Weaknesses

3 econom

ic questions

Traditional Command Market

Strengths

-Stable , predictable and continuous

-Capable of dramatic change in short time

-able to adjust to change gradually-individual freedom-less gov’t interference-large variety-consumer satisfaction

Weaknesse

s

-Discourages new ideas-Stagnation and lack of progress

-Does not meet wants and needs of consumers-lacks incentives-large bureaucracy-little flexibility-discourages new and different ideas

-rewards only productive resources

-must guard against market failures

Traditional Command Market

Strengths

-Stable , predictable and continuous

-Capable of dramatic change in short time

-able to adjust to change gradually-individual freedom-less gov’t interference-large variety-consumer satisfaction

Weaknesses

-Discourages new ideas-Stagnation and lack of progress

-Does not meet wants and needs of consumers-lacks incentives-large bureaucracy-little flexibility-discourages new and different ideas

-rewards only productive resources

-must guard against market failures

3 economic

questions

What? Based on tradition

How? Same as past

For Whom? Customs and traditions of sociey

What? Central authority (govt)

How? Central authority

For Whom? Central Authority

What? Individuals (consumers and producers)

How? Individuals

For Whom? Individuals

Assessment: Create three illustrations or comic strips

that demonstrate the basic components of each of the economic systems.

Once illustration or comic strip per economic system.

Complete for HW and turn in tomorrow…

Chapter One Review Homework: book pgs. 28 and 29 Complete the following questions in

your notebook Reviewing Key Terms #1-10 Reviewing Facts #s 1-3, 5-7, 8-9, 11-12