Introduction to Economics

Introduction to Economics

Economics Warm-up • Make TWO charts: • Listing three scarce resources in your life and in the world • Listing three wants and three needs of you AND the federal government.

Economics Economics—the study of choices that people make to satisfy their wants and needs Microeconomics—the study of choices made by economic actors such as households, companies, and individual markets ex.—anytime you buy something or your grocer orders it Macroeconomics—the behavior of entire economies ex.—trade agreements and government regulations

Economics • What type of economics studies the European Union and the North American Free Trade Agreement? • What type of economics studies the interaction among consumers & producers? • What type of economics tries to figure out why the dollar is decreasing in value compared to the euro or Canadian dollar? • What type of economics studies you choice of getting married after high school instead of going to college? • In one word, what is economics about?

Economic Decisions • Who makes decisions? • consumers—people who decide to buy things • producers—people who make the things to satisfy peoples needs and wants • How do you make decisions? • A balance of wants v. needs in terms of goods/services • want—consumption beyond survival • need—goods/services necessary for survival

Resources • Resources—the factors of production that are used in the production of economic goods and services • There are four factors of productions: all are scarce • Land-natural resources • minerals, water, air, vegetation • success of an economy is tied directly to quality & quantity of these • Labor-human resource element • Capital –goods used in production of other goods & services --What goods are commonly used in your house? --What resources were used to make those? --What other goods could be made w/ those resources? --Difference between consumer & capital good -consumers good is meant for immediate consumption • Entrepreneurship—sees an economic need and tries to fill it (risk taker) • manages all other factors

Resources • Make a table of four examples of each factor of production.

Economics • Consumers make decisions by trying to balance ______________ and _________________. • What is the difference between a consumer good and a capital good? Give examples of both. • List the 4 factors of production and provide an example of each. Now try to think of an example of each that is scarce. • What is the world’s most important resource? Is it scarce? • What goods/services would you find difficult to live without? • What goods/services would you tell people to give up to save money?

Critical Thinking about Economics • “It has been said that if you give a person a fish you feed him or her for a day. If you teach this person to fish, however, he or she will be fed for a life.” In what ways do you think that this relates to the factors of production? • If you give someone a final product, you teach them nothing about factors of production. If you teach them you have to show them a good spot (land), get a rod, reel, and tackle (capital), the art of fishing itself (labor), and managing the catch requires cleaning salting, storing freezing, and cooking (entre.)

Basic Economic Problem Need to make choices • Unlimited wants v. limited resources • What do you buy w/ your paycheck or allowance? • How do you decide what to buy when you can’t have everything you want? Or what is more important? • Everyone at all income levels have to make necessary choices? No one person, business, or government can afford all of their wants.

Let us break for a message from the administration about our new grading policy at River Valley High School.

Basic Economic Problem • Scarcity • there is always some gap between what the consumer would like and what the consumer can get. • common sense tells us that some trade-offs have to be made • Trade-offs • the process of giving up one desire in order to satisfy another desire. • Opportunity Costs • the value of what is given up in a trade-off. • If a government decides to cut taxes instead of hire new teachers or park rangers, “What is the opportunity costs?” • If a business decides to give employees raises instead of investing in the business, “what is the opportunity costs?” • opportunity costs can have large impacts on a person’s life. If you drop out of school then the opportunity costs are the foregone salary of an educated person which is almost always going to be higher. The same can be said for committing a crime and going to jail. The opportunity cost here is a few years to a life of freedom.

What basic economic problem is the mother trying to get the child to understand? Why? • If little Johnny eats his meal, will he solve the above problem? If not, what will it take for the economic problem in the above situation to be solved?

Opportunity Costs • The classic example of opportunity costs that economists use is “guns v. butter”. What are the guns? What is the butter? How is this opportunity cost exemplified?

OpportunityCosts Unlimited Wants and Needs Limited Resources Scarcity Choices Trade-offs Opportunity Costs The value of the next best alternative.

Opportunity Costs • Make a list of three major decisions you have made in the past or think you will have to make in the future. • Now make a list of all possible options for your decisions. These are potential trade-offs. • Now share what each decision is. • Now pick the next best alternative for each. This is your opportunity costs. Everything else is trade offs. • Example…My friends Ryan and Lisa live in Colorado and we plan to spend Spring break together. What to do? • Great Basin National Park, Death Valley, Las Vegas, Moab, fly them to Chico • Fly them to Chico. • Opportunity Cost: Las Vegas…meaning, I don’t get to gamble at the casino, hike in Red Rocks Park, boat & camp at Lake Mead, see Hoover Dam…again. • Trade-offs: Great Basin, Death Valley, Moab…desert camping in general

Opportunity Costs • Although Cheyanne Snyder of Frankfort, Indiana, does not enjoy getting parking tickets, she gets one every day. The fee to park her car in a garage is $4 per day. But she parks illegally in the street because a parking ticket costs her only $2. • Briefly explain how this story illustrates scarcity and choice. • Does Cheyanne bear an opportunity cost if she parks in the street or in the garage? • Briefly explain why Cheyanne’s decision to park on the street and get a ticket is wise or foolish.

Free Lunch! One of the favorite phrases of economists is, “there is no such thing as a free lunch.” What does this mean? What economic concept is it illustrating?

Production Possibilities Curve

Production Possibilities • A production possibilities curve shows all of the possible combinations of TWO goods or services that can be produced within a stated time period. • Two assumptions— • 1. the amount of resources and technology will not change; • 2. all natural, human and capital resources are being used in the most efficient manner possible.

Production Possibilities Curve • Use a ruler to help you draw the Production Possibilities Curve below your notebook. It should be large enough for you to write notes in it. Make sure you include all of the points A-D as well.

Production Possibilities Curve A-B (on the curve)=most efficient use of resources…best choice D (inside the curve)=inefficient use of resources. Possible but not ideal. C (outside the curve)=impossible to produce with the resources available.

Shifting Production Possibilities • If more resources become available, the production possibilities curve will shift to the right. • If fewer resources are available, the production possibilities curve will shift to the left. • On your production possibilities curve, draw a new curve showing what would happen if government raised taxes.

Exchange

Homework • Read chapter 1, section 4 and complete the chart on the following slide.

As you read Section 4, fill in the following chart. Then answer the question. • Describe the benefits and limitations of interdependence.

Introduction to Economics