Introduction to Economics

5/09/19
 STARTER
 

We will watch a short movie clip and consider

the dilemma faced by those involved.
 The Big
Q
What is economics and how does
it affect us?
Learning Intentions:
1. Understand the problem of scarcity
2. Explain opportunity cost
3. Recall the economic problem
 Everyday Choices for
Individuals
1. You have 15AED. You are at the canteen and you would like a cup
of coffee and some chocolate. Coffee is 14AED, while chocolate is
10AED. What choice do you make?

2. What subject would you have chosen if you decided not to study
Economics?
 Everyday Choices for
Government
1. Government has $100 million to spend. They must decide whether
to invest it on building a new hospital or building a new motorway
to improve links between 2 major cities. You are the government -
what will you chose?
2. Government has an additional $100 million to spend. It can be
used to either increase unemployment benefit or improve care for
mentally ill. Again, your choice?
 Everyday Choices for
Business
1. A technology business has $50,000 to spend. They must decide
whether to spend it on advertising existing products or researching
new products.
2. Having interviewed two experienced candidates, a business must
only hire one as budget constraints do not allow them to hire
both.
 Opportunity Cost

We are all faced with choices everyday. Once

we have made a choice (and chosen the best
alternative), the opportunity cost is the
benefit lost of the next best alternative.
 Opportunity Cost
Lets say that Government still only has $100 million to spend and they
must choose between all 4 options discussed in the previous slides.
After some consideration they settle on this order:

1. New Hospital
2. New motorway
3. Increased unemployment benefit
4. 4. Improved care for the mentally ill

What is the opportunity cost?

 Opportunity Cost
**Remember that opportunity cost refers to
the benefit lost of the next best alternative,
not the monetary value of it.
 The Economic Problem
Would the government have preferred to have been able to
build a motorway and a hospital?

Would you have preferred to have been able to have the

coffee and the chocolate?

Why can’t we!?!?

 Needs – vs - Wants
Need Food Want a Burger

VS
 Needs – vs - Wants
Needs Wants
Water Coca-Cola
Food Nice Restaurants
Warmth More holidays
Shelter A bigger house
Clothing
**The basic human Designer
needs are required to survive, Labelsour wants are
whereas,
unlimited.
The Economic Problem
Unlimited Scarce or limited
Wants resources

The Economic Problem

What to For Whom How to

Produce to Produce Produce
 The Economic Problem
So the economic problem is limited (or scarce) resources vs
unlimited wants.

This means that with limited resources we must decide what

products to produce and which not to (opportunity cost). We
must decide how to produce, which resources will use in
production, e.g. oil. And finally, who are we producing for?
Should it be affordable to everyone or only to certain people.
Economics In A Nutshell
We have needs and wants. Needs are required to survive.
Our wants are infinite.
In order to satisfy our needs and wants we must produce
goods and services. However, we have limited resources. This
causes a problem (economic problem).
We must therefore choose what to produce, which resources
to use in production and who to produce goods for.
These choices result in an opportunity cost.
Production Possibility Curve (PPC)
Also known as the Production Possibility Frontier
(PPF) – this can be used to demonstrate opportunity
cost and our decision on which goods to produce.

A PPC shows the different combinations of two

goods that can be produced if all resources in a
country are fully used.
 Plenary
Key Vocabulary:
Scarcity: limited in supply

Opportunity Cost: the benefit lost of the next best alternative.

Economic Problem: scarce resources – vs- unlimited wants

Production Possibility Curve: shows the different combinations of two

goods an economy can produce if all resources are used up.