Transcript AP Economics

3 FACTS!
1. Econ is a skills based course. Learning
methodology resembles algebra more
than history.
2. You MUST complete assignments
BEFORE class
•
Class time should be about sharpening
skills, rather than just
introducing/reviewing concepts.
3. Econ is a very intuitive subject, but it
requires PRECISION.
•
Many FRQ are similar to geometric proofs
and cannot be “fluffed”
Characteristics of the Ideal
Classroom
1. No Busy Work
2. Fun and Meaningful
Activities
3. Manageable
Assignments
4. Energy and
Enthusiasm
5. Humor
6. Varied Instruction
with Group work
7. Clear Expectation
8. Student Input
Valued
9. Respect
10. Structure and
Organization
http://www.youtube.com/watch?v=dxPVyieptwA
Review with your neighbor…
1. Define scarcity
2. Define Economics
3. Identify the relationship between scarcity
and choices
4. Explain how Macroeconomics is different
than Micro
5. Explain the difference between positive and
normative economics
6. Identify the 5 main assumptions of
Economics
7. Give an example of marginal analysis
8. Name 10 Disney movies
AP Economics
“Econ,
Econ”
Econ
3 FACTS!
1. Econ is a skills based course. Learning
methodology resembles algebra more
than history.
2. You MUST complete assignments
BEFORE class
•
Class time should be about sharpening
skills, rather than just
introducing/reviewing concepts.
3. Econ is a very intuitive subject, but it
requires PRECISION.
•
Many FRQ are similar to geometric proofs
and cannot be “fluffed”
What is Economics?
• Economics is the study of scarcity and
choices
• Scarcity means that we have unlimited
wants but limited resources.
• Since we are unable to have everything
we desire, we must make choices on how
we will use our resources.
In economics we will study the choices of
individuals, firms, and governments.
ECONOMICS IS THE STUDY OF CHOICES
Economy
• Economy- system that coordinates
choices about production with choices
– Market economy- production and
consumption based on individuals
(consumers/producers)
– Command economy- central authority makes
choices of production and consumption
• LACK OF INCENTIVES
Marginal Analysis
In economics the term marginal = additional
“Thinking on the margin”, or MARGINAL
ANALYSIS involves making decisions based on
the additional benefit vs. the additional cost.
For Example:
You have been shopping at the mall for a half hour, the
additional benefit of shopping for an additional half-hour
might outweigh the additional cost (the opportunity cost).
After three hours, the additional benefit from staying an
additional half-hour would likely be less than the
additional cost.
Marginal Analysis
Notice that the decision making process wasn’t
“should I go to the mall for 3 hours or should I
stay home”
In reality the decision making process started
with “should I go to the mall at all.”
Once you are there you thought “should I stay
for an additional half hour or should I go.”
The MARGINAL ANALYSIS approach to
decision making is more comely used than the “all
or nothing” approach.
Thinking at the Margin
# Times
Watching
Movie
Benefit
Cost
1st
2nd
3rd
Total
$30
$15
$5
$50
$10
$10
$10
$30
Would you see the movie three times?
Notice that the total benefit is more than the
total cost but you would NOT watch the movie
the 3rd time.
Marginal Analysis
Notice that the decision making process wasn’t
“should I go to the mall for 3 hours or should I
stay home” You will continue to do
something until the
In reality the decision
making
process started
marginal
cost
with “shouldoutweighs
I go to the the
mallmarginal
at all.”
Once you are there you
thought “should I stay
benefit.
for an additional half hour or should I go.”
The MARGINAL ANALYSIS approach to
decision making is more comely used than the “all
or nothing” approach.
The 4 Factors of
Production
13
The Four Factors of
Production
•Producing goods and services requires the use of
resources- DUH!.
•ALL resources can be classified as one of the
following four factors of production:
Land
Labor
Capital
Entrepreneurship
14
The Four Factors of
Production
Land = All natural resources that are used to
produce goods and services. Anything that
comes from “mother nature.” (Water, Sun,
Plants, Oil, Trees, Stone, Animals, etc.)
Labor = Any effort a person devotes to a task for which
that person is paid. (manual laborers, lawyers,
doctors, teachers, waiters, etc.)
15
The Four Factors of
Production
Two Types of Capital:
1. Physical Capital- Any human-made resource
that is used to create other goods and services
(tools, tractors, machinery, buildings, factories,
etc.)
2. Human Capital- Any skills or knowledge gained
by a worker through education and experience
(college degrees, vocational training, etc.)
16
The Four Factors of
Production
• Entrepreneurship= ambitious leaders that
combine the other factors of production to
create goods and services.
• Examples-Henry Ford, Bill Gates, Inventors,
Store Owners, etc.
Entrepreneurs:
1. Take The Initiative
2. Innovate
3. Act as the Risk Bearers
PROFIT
So they can obtain _________.
Profit= Revenue - Costs
17
The Factors of
Production
18
The Four Factors of Production
Classify the Factors of Production in the following scenario:
You decide to order a pizza to satisfy your wants. First,
you picked up the telephone and gave your order to the owner
that entered it into her computer. This information came up on
the chief baker’s monitor in the kitchen and he assigned it to
one of his cooks. The cook was busy mixing dough out of salt,
flour, eggs, and milk.
The cook finished mixing dough, washed his hands in
the sink, and prepared your pizza using tomato sauce, cheese,
and sausage. He then placed the pizza in the oven. Within 10
minutes the pizza was cooked and placed in a cardboard box.
The delivery person then grabbed your pizza, jumped in the
company car, and delivered it to your door.
The Four Factors of Production
Classify the Factors of Production in the following scenario:
You decide to order a pizza to satisfy your wants. First,
you picked up the telephone and gave your order to the owner
that entered it into her computer. This information came up on
the chief baker’s monitor in the kitchen and he assigned it to
one of his cooks. The cook was busy mixing dough out of salt,
flour, eggs, and milk.
The cook finished mixing dough, washed his hands in
the sink, and prepared your pizza using tomato sauce, cheese,
and sausage. He then placed the pizza in the oven. Within 10
minutes the pizza was cooked and placed in a cardboard box.
The delivery person then grabbed your pizza, jumped in the
company car, and delivered it to your door.
Analyzing Choices
Scarcity
Trade-offs and Opportunity
Cost
ALL decisions involve trade-offs.
Trade-offs are all the alternatives that we give up
whenever we choose one course of action over
others.
(Examples: going to the movies)
The most desirable alternative given up as a
result of a decision is known as opportunity cost.
What are trade-offs of deciding to go to college?
What is the opportunity cost of going to college?
GEICO assumes you understand
opportunity cost. Why?
http://www.youtube.com/watch?v=nLJ8ILIE780
Micro vs. Macro
MICROeconomicsStudy of small economic units such as
individuals, firms, and industries (ex: supply
and demand in specific markets, production
costs, labor markets, etc.)
MACROeconomicsStudy of the large economy as a whole or
economic aggregates (ex: economic growth,
government spending, inflation,
unemployment, international trade etc.)
How is Economics used?
• Economists use the scientific method to make
generalizations and abstractions to develop
theories. This is called theoretical economics.
• These theories are then applied to fix problems
or meet economic goals. This is called policy
economics.
Positive vs. Normative
Positive Economics- Based on facts. Avoids value
judgements (what is).
Normative Economics- Includes value judgements
(what ought to be).
5 Key Economic Assumptions
1. Society’s wants are unlimited, but ALL resources
are limited (scarcity).
2. Due to scarcity, choices must be made. Every choice
has a cost (a trade-off).
3. Everyone’s goal is to make choices that maximize
their satisfaction. Everyone acts in their own “selfinterest.”
4. Everyone makes decisions by comparing the
marginal costs and marginal benefits of every
choice.
5. Real-life situations can be explained and analyzed
through simplified models and graphs.