Ch. 1 Notes
What is Economics?
Section 1: Scarcity and the Factors of Production
What do the following have in common?
Scarcity and Choice
Economics is the study of how people seek to satisfy their needs and wants by making choices
A need is something like air, food, shelter or water that is necessary for survival
A want is an item we desire but is not necessary for survival
Economics answers such questions as:
What will happen to me if I go to the movies instead of study for this test?
How many people should my company employ, and how much should it produce?
How much should the national government tax its citizens and on what should it spend the money?
Why not both? Why not hire everyone and produce everything? Why not have the government pay for everything?
The Answer: Scarcity
What is Scarcity?
Goods, physical objects like clothes and shoes, and services like haircuts, doctor visits and acting in a movie, are all finite...there isn't an unlimited amount of them
Not the same as a "shortage"
A shortage is when producers of a product or service cannot or will not offer it at current prices
Factors of Production
Land: all natural resources used to produce goods and services
Labor: the effort a person devotes to a task for which that person gets paid
Capital: any human made resource used to produce other goods and services
Physical Capital
What are the benefits?
1. Extra Time
2. More Knowledge
3. More Productivity
Human Capital...
is the knowledge and skill a worker gains through education and experience
Entrepreneurs
put it all together...
Fill in the empty boxes with the missing information
Trade-offs: alternatives we give up when we choose one course of action over another
Guns or Butter: how economists describe the trade-offs countries make between consumer goods and military goods
Opportunity cost: the most desirable opportunity given up
Thinking at the margin: deciding about adding or subtracting one unit of a resource.
• Production possibility curves show alternative ways of using a country's resources
• Efficiency means that an economy is using resources in such a way as to maximize the production of goods and services
• The production possibilities frontier is the line on the curve that shows the maximum possible production
• Underutilization is when an economy is using fewer resources than it is capable of using
Production Possibility Curve
Production Possibility Curve
Constructing a Production Possibility Curve
• Any point along the curve or below.
• 14,000 Sesame Street dolls
• 10,000 Beanie Babies
• 22,000 Beanie Babies to 0 Sesame Street dolls
• All points along the curve.
• Point “A”
Section 2 Guided Reading
• individuals, businesses and governments
• Resources are limited
• It varies based on what is being given up by making the decision
• The choices of what must be given up vary from situation to situation
• Decision making
6. Opportunity cost and benefits
7. Both trade offs and opportunity costs are choices/benefits that individuals or groups give up in favor of another choice/benefit
8. An opportunity cost is the most desirable option of all those available, but there may be more than one trade-off.
9. Guns or Butter decisions are made by countries/societies when they choose to produce more or less military or consumer goods
10. Thinking at the margin considers the relative benefit of doing or using one additional unit of a resource
Section 3 Guided Reading
• Horizontal and vertical axes
• Points plotted on the graph
• Line connecting the plotted points
• Production possibilities frontier
• Points inside of the production possibilities frontier
6. Line outside of the production possibilities frontier
7. Graph that shows alternative ways to use an economy’s resources
8. Line on a production possibilities curve that shows the maximum possible output
9. Using resources in such a ways as to maximize the output of goods and services
10. Using fewer resources than an economy is capable of using
11. Alternative that is given up because of a decision
12. Shifting factor of production from making one good or service to another increases the cost of producing the second item
Section 1: Scarcity and the Factors of Production
What do the following have in common?
Scarcity and Choice
Economics is the study of how people seek to satisfy their needs and wants by making choices
A need is something like air, food, shelter or water that is necessary for survival
A want is an item we desire but is not necessary for survival
Economics answers such questions as:
What will happen to me if I go to the movies instead of study for this test?
How many people should my company employ, and how much should it produce?
How much should the national government tax its citizens and on what should it spend the money?
Why not both? Why not hire everyone and produce everything? Why not have the government pay for everything?
The Answer: Scarcity
What is Scarcity?
Goods, physical objects like clothes and shoes, and services like haircuts, doctor visits and acting in a movie, are all finite...there isn't an unlimited amount of them
Not the same as a "shortage"
A shortage is when producers of a product or service cannot or will not offer it at current prices
Factors of Production
Land: all natural resources used to produce goods and services
Labor: the effort a person devotes to a task for which that person gets paid
Capital: any human made resource used to produce other goods and services
Physical Capital
What are the benefits?
1. Extra Time
2. More Knowledge
3. More Productivity
Human Capital...
is the knowledge and skill a worker gains through education and experience
Entrepreneurs
put it all together...
Fill in the empty boxes with the missing information
Trade-offs: alternatives we give up when we choose one course of action over another
Guns or Butter: how economists describe the trade-offs countries make between consumer goods and military goods
Opportunity cost: the most desirable opportunity given up
Thinking at the margin: deciding about adding or subtracting one unit of a resource.
• Production possibility curves show alternative ways of using a country's resources
• Efficiency means that an economy is using resources in such a way as to maximize the production of goods and services
• The production possibilities frontier is the line on the curve that shows the maximum possible production
• Underutilization is when an economy is using fewer resources than it is capable of using
Production Possibility Curve
Production Possibility Curve
Constructing a Production Possibility Curve
• Any point along the curve or below.
• 14,000 Sesame Street dolls
• 10,000 Beanie Babies
• 22,000 Beanie Babies to 0 Sesame Street dolls
• All points along the curve.
• Point “A”
Section 2 Guided Reading
• individuals, businesses and governments
• Resources are limited
• It varies based on what is being given up by making the decision
• The choices of what must be given up vary from situation to situation
• Decision making
6. Opportunity cost and benefits
7. Both trade offs and opportunity costs are choices/benefits that individuals or groups give up in favor of another choice/benefit
8. An opportunity cost is the most desirable option of all those available, but there may be more than one trade-off.
9. Guns or Butter decisions are made by countries/societies when they choose to produce more or less military or consumer goods
10. Thinking at the margin considers the relative benefit of doing or using one additional unit of a resource
Section 3 Guided Reading
• Horizontal and vertical axes
• Points plotted on the graph
• Line connecting the plotted points
• Production possibilities frontier
• Points inside of the production possibilities frontier
6. Line outside of the production possibilities frontier
7. Graph that shows alternative ways to use an economy’s resources
8. Line on a production possibilities curve that shows the maximum possible output
9. Using resources in such a ways as to maximize the output of goods and services
10. Using fewer resources than an economy is capable of using
11. Alternative that is given up because of a decision
12. Shifting factor of production from making one good or service to another increases the cost of producing the second item
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