CHAPTER 1: OVERVIEW

• People, businesses, and governments must choose among limited

or scarce resources. Economics describes how people seek to
satisfy their needs and wants by choosing among many
alternatives.

• All human decisions involve trade-offs. The next best

alternative to any choice is called an opportunity cost. Decision-
making grids can make it easier to identify the trade-offs and
opportunity cost of a decision.

• Decisions about which goods and services to produce affect each

of us every day. Production Possibilities graphs or frontiers can
help us examine the opportunity cost of these decisions.
 WHAT IS ECONOMICS?
• Economics is the study of choices
• Studies how people decide to resolve
conflict between unlimited wants &
limited resources.
• Tries to explain how limited resources
are used to satisfy people’s wants.
ECONOMIC POWER OF TEENS
 US TEEN SPENDING 2018
BROKEN DOWN BY CATEGORY
 WHY BOTHER?
• Simply put, economics
helps explain how the world
works
- Human activity
- Human organization
• Can provide insight and
potential solutions to many
issues including poverty,
energy, global warming,
etc.
• This is mandatory to
graduate
 MICK JAGGER EXPLAINS BASIC
ECONOMICS:

• “You can’t always get what you want, but if you try sometimes
you might just find, you get what you need…”- Rolling Stones

• Need: something like air, food, or

shelter that is necessary for survival
• Want: at item we desire but it is not
essential to survive
WHY CAN’T WE ALWAYS GET WHAT
WE WANT?
• Wegmans is filled with food, our malls are
filled with clothes!
• In reality, however, we live in a world of
scarce resources
- Scarcity: limited quantities of resources to meet
unlimited wants (limited helium)
- Shortage: a situation in which a good or service is
unavailable (Check out Wegman’s bread and milk
aisle in a storm & Popeye’s running out of chicken
sandwiches)
 Scarcity
SCARCITY:
• The reason we make decisions. Scarcity exists
in all places at all times
• Implies limited quantity of resources
relative to human wants
• BUT: The fact that there is small quantity
of a good does not make it scarce.

People have to want it

 SCARCITY V. SHORTAGE:
• Scarcity not same as a shortage
• Shortages -short term supply can’t/won’t meet
consumer demand
• Can you think of any examples of shortages?
• (Check out Wegman’s bread and milk aisle in a
storm & Popeye’s running out of chicken
sandwiches)
• Scarcity always exists because our needs & wants
are always greater than our resources
 ALLOCATION
How do we decide who gets what?
 HURRICANE DORIAN
• Shortage of water leads to
• Increase in price of water (some reports $99 for a case of water bottles or $8.50 per bottle)

• Why is this bad?

• Predatory Pricing
• Texas state law says it is illegal to raise prices to excessive highs on necessities during
times of crisis
• Rich are able to afford it, poor are not

• Why may this be good?

• First person(s) will not be able to buy out the supply
• High profit motive will keep store open vs. owner closing and taking care of his own home
• High profit motive will also lead to owner spending more money to get more products into
store even if shipping is much more expensive due to circumstances
IN THE APPLICATION PACKET
TRY PAGES 1 & 2
GOODS VS. SERVICE
 WHAT DO WE WANT? NEED?

• Goods
- Physical objects that
can be bought or sold

• Services
- Actions or activities that
one performs for
another
 FACTORS OF
PRODUCTION(RESOURCES):

• Inputs used in production:

• Necessary to produce goods & services
• Include:
• Natural resources (land)
• Labor
• Capital
• Entrepreneurship
 FACTORS OF PRODUCTION

• Land –all natural resources that are used to make goods and
services (not just real estate): rubber, petroleum, cowhide,
etc.
• Labor- the effort that people devote to a task (not just
physical work): Any effort a person devotes to a task for
which that person is paid (design logos, market brands)
• Capital- any human made resource that is used to create
other goods and services (not just money): machines,
computers used to design websites
 EXAMPLES OF LAND

When you see land think NATURAL RESOURCES

EXAMPLES OF LABOR
EXAMPLES OF CAPITAL
 TYPES OF CAPITAL:
Physical Capital: Human-made goods that
are used to create other goods & services.
(Important: saves time & money)

Human Capital: The knowledge & skills a

gained by a worker through education &
experience.

Financial Capital: The money used by

businesses to buy what they need to make their
products or provide their services
WHAT WILL YOUR HUMAN
CAPITAL BE?
 WHAT FACTORS OF
PRODUCTION WENT INTO
THE BUILDING OF SHS?

___Land_____________Labor_____________Capital____
 ORGANIZING THE
FACTORS
Think of the most innovative
company, business, good/service
you have encountered.
 ENTREPRENEUR:
• Risk-takers who work to combine land, labor, and capital to create and
market new goods or services…
• brings together land, labor, & capital to exploit opportunity to create
new goods or services. Takes risk & reaps benefits of creating new
goods or services.
• How it’s made

• How it’s made

• Scrub Daddy

• Update
 TRY PAGES 4 & 5 IN
APPLICATION PACKET
 MAKING CHOICES:
• Scarcity forces people to make choices
• Every Choice Has Consequences:
Trade off- alternatives that we give up when we choose one
course of action over another
Examples:
•Making a 5 cars instead of a tank out of steel.
•Going on a vacation instead of working over the week
long spring break
•Watching Netflix instead of studying for economics
EVERY CHOICE HAS CONSEQUENCES:

The most desirable alternative given up as the result of

a decision is called the Opportunity Cost
• What is the best possible thing I am giving up; stated in
a positive way?
Choice: What to do with a block of wood?
Use it as a chair?
Use it as a door stop?
https://www.youtube.com/watch?v=UZ_8fsG8Q1A
Fear of missing out-Instagram, snapchat
(Slumdog choices)
 OPPORTUNITY COST PRACTICE:

• What is the best possible thing given up in the

following scenarios?
• Spending $100.00 on a pair of new jeans
• Skipping class
• Playing in a basketball game
• Cutting down an apple orchard to make room
for a new apartment complex
 WHAT IS THE OPPORTUNITY COST OF:

1.building a turf athletic field in an area currently

occupied by low income housing apartments?
2.Going to the movies instead of cleaning your room?
3.Eating a slice of cake even though you know it is going
to hurt your stomach?
4.Fixing your car instead of going on vacation?
5.Using 20% of our countries resources on the armed
forces?
 DECISIONS, DECISIONS,
DECISIONS…
• Universal Healthcare
• More $$$ on Defense
• Provide for our Homeless
• Universal Education
• Combat starvation, hunger and infant mortality in Africa
• Explore colonization of the Moon and Mars
• Aggressively pursue greener, re-newable sources of energy (cap-and-trade)
 OPPORTUNITY COST
• The Bills were playing in the AFC championship (maybe someday),
but Mr. Gleeson signed up to work a basketball game. Mr. Gleeson
could easily find somebody to cover for him. Should he work the
game or watch the Bills?
Work Game Watch Football

Benefits  $$ for working game Enjoyment of watching the

 Watch students play game live on TV from my
Lazy-Boy
 Relaxation

Opportunity Cost  Watching the Bills  Working the basketball game

Benefits forgone  Enjoyment of watching  $$ for working game

the game live on TV from  Watch students play
my Lazy-Boy
 Relaxation
 OPPORTUNITY COST: YOUR TURN
• Describe the decision:

Option 1______________ Option 2___________

Benefits

Opportunity Cost

Benefits forgone
 OPPORTUNITY COST

• https://www.youtube.com/watch?v=XfXfOCIIFcY
 FLIP TO OPPORTUNITY COST
WORKSHEET (PAGE 6)
• Use your recently acquired knowledge to answer the questions on
opportunity cost
 THINKING AT THE MARGIN:

• Thinking at the Margin- Examining additional

benefits of an activity compared to additional costs
incurred by that same activity.
• deciding whether to do or use one additional
unit of some resource.
• Thinking at the margin with Monty Python:
• https://www.youtube.com/watch?v=0BAMv6lV2t4
 THINKING AT THE MARGIN
MISTAKE
• It needs to be at a unit by unit decision to be thinking at the
margin, not an all or nothing.
• Example- Should I study 1, 2 or 3 hours for my test?
• NOT AN EXAMPLE- Should I study for my test or not?
 THINKING AT THE MARGIN

• When making a decision you should think at the margin—don’t

make all or nothing decisions!

• Companies use marginal analysis as a decision-making tool to

help them maximize their potential profits.

• Individuals unconsciously use marginal analysis as well, to make

a host of everyday decisions

• PPFs help us visualize and make decisions at the margin

 DISCUSSION
• Meeting with a partner near you, discuss decisions you make that are not
an either/or decision

• Describe a decision made “…at the margin”

TRY PAGE 8 & 9 IN
YOUR APPLICATION
PACKET
 PRODUCTION POSSIBILITY
FRONTIER:
• Production Possibility Frontier (PPF)- a visual
representation of trade-offs & opportunity costs
• graph that shows what economy can produce with
present resources
• In other words it shows what we can make with
what we have.
• Illustrates different maximum output combinations
of goods/services than can be obtained from a fixed
amount of resources
PRODUCTION POSSIBILITY FRONTIER
 What does a PPF tell us?
• If the economy is at a point on the line, then it
is making full use of its resources- efficient
• If economy is at a point inside boundary it is
not using all its resources efficiently-
underutilization.
• It’s impossible to be at point outside PPF
boundary/line unless increase in factors of
production– Growth/Unattainable
 MORE TERMS

• What letter on the graph

would be efficient?
• What letter on the graph 15
B
would be
underutilization? C
• What letter on the map

Jeans
A
would be unattainable?
• What letter on the map
would show growth
more resources were 0 10
secured?
Ethanol
 EXAMPLE: JEANS VS. ETHANOL

Jeans Ethanol
(Gallons)
15
0 10

4 9

Jeans
8 7

10 4
0 10
15 0 Ethanol
 INTERPRETING THE GRAPH

• To go from 0 jeans to 4 jeans, what is the opportunity cost in

terms of ethanol?
1 gallon of ethanol
• To go from 4 gallons to 7 gallons, what is the opportunity cost in
terms of jeans?
2 pairs of jeans
 SHIFTS IN THE PRODUCTION
POSSIBILITY CURVE

• Society can produce

more output if:
• More resources are
discovered.
 MORE PRODUCTION?

• Other ways growth can occur (push curve to the

right)
• Technology
• Productivity
• Curves that contract, shift left:
• War (war-torn)
• Strikes
• Bad education
 LAW OF INCREASING COSTS:

• As production switches from one item to another

more & more resources necessary to increase
production of 2nd item.
• Opportunity cost increases b/c Some resources
better suited to one alternative over the other
 SIDEBAR FOR CULTURAL LITERACY

• “Guns or Butter,” is a phrase that refers to a

trade-off countries make regarding whether to
produce military goods or consumer goods…
INCREASING OPPORTUNITY COST
What is scarce in this situation?
Leather
How many couches can be
produced when 300 pairs of
boots are made?
3 couches
What is the opportunity cost
in terms of boots when 10
couches are made?
500 pairs of boots
 MONSTERS INC. & THE PPF

• https://www.youtube.com/watch?v=tW4G5IPpzFY
 EXTERNALITIES
• An externality is a
consequence of an
economic activity
experienced by
unrelated third
parties; it can be
either positive or
negative.
 THE LORAX

• https://www.youtube.com/watch?v=8V06ZOQuo0k

• Page 10 in application packet

• Keep in mind Externalities
 POSITIVE EXTERNALITIES
Positive Externality Examples:
•Immunizations, such as a flu shot, etc., provide a positive externality to third parties in
that it helps prevent the spread of illness in the general public.
•A company provides funds for its employees to obtain specialized training or degrees.
By doing so, the company can be benefited by increased production which also benefits
the customer. At the same time, this can benefit society as a whole by increasing the
level of education, quality of life, etc.
•Significant home improvements will not only raise a person's property value, but it
will also increase the values of the home nearby.
•Improving driving habits will decrease the risk of accident for everyone on the road as
well as eventually reduce insurance premiums of the driver.
 NEGATIVE EXTERNALITIES

Negative Externality Examples

•Pollution from a factory can cause health problems and erode the quality of life and
property values in a community.
• A power plant that burns coal to generate electricity emits pollution. The more
electricity that is demanded by customers, the more coal that is burned in order to
produce it. Increasing the amount of coal burned to generate electricity thus
increases the level of pollutants emitted into the atmosphere that can lead to such
things as global warning, acid rain and smog.
•Second-hand cigarette smoke causes health problems in people other than smoker.
•A loud party next door can cause those not involved in the festivities to lose sleep.
THREE GORGES DAM IN CHINA
POSITIVE OR NEGATIVE?
On the very last page in your packet on the
bottom half, answer these questions.

• Provide an example of an economic trade-off.

• How are trade-offs and opportunity costs

different?
 MARKETS
• What is a market?
• Arrangement that allows buyers and sellers to
exchange things
• Why?
• Nobody is self-sufficient
• Can I barter “teaching” with Danny Wegman?
• Specialization
• is the concentration of the productive efforts of
individuals
OH NO, CIRCULAR FLOW!
DEFINITIONS
• Household
• Person or group living in the same residence
• Own land, labor, capital

• Firm
• Organization that uses resources to produce a product.
Combines Land, Labor, and Capital.
• Firm transforms “inputs” into “outputs”
 DEFINITIONS
• Factor Market
• where firms purchase the factors of production from households
• Most notably, labor

• Product Market
• Where households purchase goods and services that firms
produce
WHY DOES IT ALL WORK?
• Self-Interest:
• "It is not from the benevolence of the butcher, the
brewer, or the baker, that we can expect our dinner, but
from their regard to their own interest." – A. Smith
• Acting in our own self interest to satisfy
needs and wants
• Not the same as selfish
 COMPETITION
• Competition – the struggle among producers for the dollars
of consumers
• http://www.gasbuddy.com/
 INVISIBLE HAND
• Invisible hand is how the
market regulates itself
• “he intends only his own gain, and
he is in this, as in many other cases,
led by an invisible hand to promote
an end which was no part of his
intention. Nor is it always the worse
for the society that it was not part of
it. By pursuing his own interest he
frequently promotes that of the
society more effectually than when
he really intends to promote it.” – A.
Smith, Wealth of Nations
 GOVERNMENT AND
CIRCULAR FLOW
• Like a firm, government purchases land, labor, and capital from
households
• Governments also purchase in the product market
• Transfer of money two ways as well
• Taxes
• Paying benefits (social security)
 CHAPTER 1 REVIEW

• https://www.youtube.com/watch?v=3ez10ADR_gM
• Circular Flow Model
• https://www.youtube.com/watch?v=mN5HPJYJzus

• PPF Start at 3:30

• https://www.youtube.com/watch?v=NI9TLDIPVcs&t=222s