Transcript Document

SPONGE: MONDAY, JANUARY 9

If you were to start your own company, what
goods or services would you sell? What kind of
resources would you need to start that company?
FUNDAMENTALS OF ECONOMICS:
Basic Concepts
UNIT II: STANDARDS

SSEF1: The student will explain why
limited productive resources and unlimited
wants result in scarcity, opportunity costs,
and trade-offs for individuals, businesses
and governments.
WHAT IS ECONOMICS?


The study of how individuals, businesses (also
called firms), and nations can best allocate their
limited (or scarce) resources to satisfy seemingly
unlimited and competing wants.
Or, how people can get the most benefit out of the
limited resources available at the lowest cost.
SSEF1(A)
(a.) Define scarcity as a basic condition which
exists when unlimited wants exceed limited
productive resources.
ECONOMICS: THE BIG IDEA
Scarcity is the basic economic problem that
requires people to make careful choices about
how to use limited resources to produce all the
things people would like to have.
 In other words, how does a society meet people’s
virtually unlimited wants with limited (scarce)
resource?


VE4 Video
SCARCITY
Defined as lack of adequate resources to obtain
all of one’s wants.
 Does not mean rare (hurricanes are rare, but not
scarce because no one wants them)
 Scarce goods are desirable and limited
 An item’s scarcity decreases and it becomes less
costly as it becomes more
common and/or demand for it
diminishes

RESOURCES & WANTS

PROBLEM: While wants are unlimited,
resources for obtaining them (e.g., land, money,
time) are not.
So what do we do?

People, businesses, and even governments have
to make choices about how to spend their
resources
SCARCITY: THREE BASIC QUESTIONS
All societies experience scarcity, so they must
answer three fundamental questions:
1.
2.
3.
WHAT to produce? Food, housing, military
equipment, green space, etc.
HOW to produce? More automation and fewer
workers? Fewer machines and more workers?
FOR WHOM to produce? E.g., low-income,
multi-family housing or single-family housing
for wealthy citizens?
SCRATCH YOUR HEADS:

What problems do you think society might face in
trying to decide what, how and for whom to
produce?

Discuss with a neighbor then share with the class.
WHAT WE WANT VS. WHAT WE NEED
Needs

A basic requirement
for survival such as
food, shelter, clothing
Wants

Goods and services
one desires and would
obtain if he/she could
but that are not
necessary for survival
SPONGE: TUESDAY, JANUARY 10
1.
2.
What are the four factors of production?
What are the three questions that each society
must answer because of scarcity?
SSEF1(B)
(b.) Define and give examples of
productive resources (or factors of
production):
(1) land (natural resources)
(2) labor (human resources)
(3) capital (or capital goods)
(4) entrepreneurship or
entrepreneurs
PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION

FACTORS OF PRODUCTION
CAPITAL
 ENTREPRENEURSHIP
 LAND
 LABOR


Elements of every business whether small or
large
PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION
Land
 Includes property on
which production plant is
built, BUT in econ it is
more than just land:


All natural resources incl.
mineral deposits, fertile
fields, livestock, sunshine
and climate
Building blocks of most
goods manufactured for
human use
PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION
•
Natural Resources – raw materials in nature
used to produce what humans need or want
•
Timber, water, iron ore, crude oil, natural gas,
coal, fish, uranium and arable (farmable) land
•
Two kinds of natural resources:
1.
2.
Renewable: A resource that can be
replenished (replaced) over time; e.g., timber
Non-renewable: resource that cannot be
replenished over time; e.g., crude oil
PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION

Labor
Contribution of
human workers to
production
 Mental efforts as well
as physical efforts
 Highly skilled and
unskilled labor
 Examples: open-heart
surgery, assemblyline work, janitorial
services and writing a
book

PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION
Capital (or capital goods)
 Tools, equipment,
machinery, and structures
(buildings & factories)
involved in the production of
goods and services
Examples: building,
machinery, tools, lighting and
assembly line
 More examples: nail guns
used by roofers, rags used by
employees at car wash and
computer used to enter data

PRODUCTIVE RESOURCES/FACTORS
OF PRODUCTION
Entrepreneurship





Creative, managerial and risktaking capabilities involved in
starting up and running a
business
Organizing the business
Developing a business model
(plan for conduct of business
operations)
Raising funds to open business
Entrepreneur: Risk-taker in
search of profits who does
something new with existing
resources
 Examples:
Bill Gates; Sam
SSEF1(C)
(c) List a variety of strategies for allocating
scarce resources.
Scarcity is the basic economic problem that
requires people to make careful choices about
how to use limited resources to produce all the
things people would like to have.
 In other words, how does a society meet people’s
virtually unlimited wants with scarce resource?

SCARCITY
An item’s scarcity increases and the item
becomes more costly either by becoming rare (less
of it to go around) or because people want more
than is available
 Same coin/other side: An item’s scarcity
decreases and it becomes less costly as it becomes
more common and/or demand for it diminishes

STRATEGIES FOR DEALING WITH
SCARCITY
1.
Higher prices – By raising prices,
companies limit the number of consumers
who can actually buy the product and they
limit how often consumers buy the
product


The more scarce an item is, the more it costs
Example: gas prices after Katrina due to
damaged oil rigs and refineries which caused
oil production to decrease; oil cos. raised prices
in order to still make $$ and not run out of gas
STRATEGIES FOR DEALING WITH SCARCITY
2.
Government regulations

Price ceiling or price floor – price of a certain
good or service is not allowed to rise above or
drop below a certain level
Ceiling = max figure above which price cannot rise
 Floor = minimum figure below which a price cannot
fall


Rationing – allows citizens to purchase only so
much of a scarce good to make sure there is
enough to go around

Example: during WWII U. S. rationed certain
products at home in order to make sure there was
enough available to supply soldiers with what they
needed overseas
PRACTICE QUESTIONS
1.
The study of how individuals, firms
(businesses) and nations can best allocate their
limited resources is called
a. Economics.
c. Scarcity calculation
b. Entrepreneurship.
d. Government
regulation.
2.
When wants exceed resources it is known as
a. Economics.
c. Scarcity.
b. Entrepreneurship.d. Production resources.
3.
Describe some strategies used by businesses
and governments to deal with scarcity
SPONGE: WEDNESDAY, JANUARY 11
You have 30 minutes to finish your company
project. Make sure that your required factors of
production are indicated on your poster.
 We will then do presentations and the class will
vote who to invest in.

WORK PERIOD: TUESDAY, JANUARY 10
With your company groups, elaborate on the product
or service that you decided to sell.
 Be sure that you have a detailed list of the factors of
production that you will need for your product or
service
 Create a poster that has the following:
1. Company’s name and logo/slogan;
2. Image and description of your product or service;
3.
A list of the factors of production that you will need
(hint: you will need factors from all four categories)
and a description of how you will use them
 Note that the back of the rubric has a place for you to
list the definitions of the factors and how your
company will use them

SPONGE: THURSDAY, JANUARY 12
LET’S INVEST SOME $$$
Each person has $50,000 to invest in companies
other than your own
 You may invest in $10,000 increments
 Each individual must also put comments on two
other posters—keep the comments constructive
 7 minutes only!

UNIT I: STANDARDS

SSEF2: Give examples of how rational decisionmaking entails comparing the marginal benefits
and the marginal costs of an action.
(a) Illustrate, by means of a production-possibilities
curve, the tradeoffs between two options.
 (b) Explain that rational decisions occur when the
marginal benefits of an action equal or exceed the
marginal costs.

ECONOMIC DECISION MAKING

The result of scarcity is that economic actors
(households, business firms, and governments)
must often make choices between two or more
options that offer less than what they would like.
ECONOMIC DECISION MAKING
 1st:
Define
the problem
What do you want?
 What do you have?

ECONOMIC DECISION MAKING
•
2nd: List the
alternative
s

What are the
options that you
could choose to
do?
ECONOMIC DECISION MAKING
•
3rd: State
the criteria

What are your
priorities?
ECONOMIC DECISION MAKING
4th:
Evaluate
the
alternative
s

Tradeoff – act of giving up
one thing of value to gain
another thing of value;
alternative choices
Unavoidable b/c resources are
limited
 Every economic decision
involves a tradeoff


Opportunity Cost – value of
the next best alternative
option that is lost when an
individual, business, or
government makes a
decision; or, the benefits you
could have rec’d by taking
USE YOUR WHITEBOARDS:
OPPORTUNITY COSTS
What is the opportunity cost of going to college?
What about gardening? If a gardener decides to
grow carrots, what might his or her opportunity
cost be?
SSEF2(b) Explain that rational decisions occur
when the marginal benefits of an action equal or
exceed the marginal costs.
ECONOMIC DECISION MAKING
 5th:
Make a
rational
decision
 Marginal
benefit –
amount of benefit a
person, business,
or government
receives once the
cost of their
decision is
considered
 Marginal cost –
cost of the decision
once it is weighed
against the
benefits
RATIONAL DECISION-MAKING


People, businesses and governments make
rational decisions when they determine that the
marginal benefit of an action is equal to or
exceeds the marginal costs.
In other words, if the benefits are greater than
the costs, then it is a rational economic decision.
SPONGE: FRIDAY, JANUARY 13

I considered going for a run at 5:30 this morning,
but instead I chose to get up and get ready for
class. What was the opportunity cost of my
decision?
OPPORTUNITY COSTS

Video
BIG IDEA
All economic decisions involve trade-offs,
opportunity costs, marginal benefits, and
marginal costs, regardless if they are made by
individuals, businesses or governments.
 A business must decide whether it is
worthwhile to produce a good or service and
when it would be profitable
 Consumers must look at three things:

Cost of a decision
 Benefits of a decision
 Trade-offs of a decision

Criteria
#1
Option 1
Option 2
Option 3
Option 4
Criteria
#2
Criteria
#3
Criteria
#4
Criteria
#5
SPONGE: TUESDAY, JANUARY 17
Read the description of a woman eating peaches
that was on the handout you picked up on Friday
(the one with the arrows on it).
 Read the description of marginal costs and
benefits in the EOCT book (page 22)
 How might a company use the concept of
marginal benefit and marginal cost to decide
whether it should add more workers?

SSEF2 The student will give examples of
how rational decision making entails
comparing the marginal benefits and the
marginal costs of an action.
a. Illustrate by means of a production
possibilities curve the trade offs between two
options.
b. Explain that rational decisions occur when the
marginal benefits of an action equal or exceed the
marginal costs.
PRODUCTION POSSIBILITIES

Every economic decision involves a trade-off
 Trade-offs
limited


are unavoidable b/c resources are
Businesses cannot produce all that they would like
b/c of limited money, modes of production, laborers,
etc.
A production-possibilities curve shows how much
of a particular product can be produced given the
limited amount of resources at a company’s or
country’s disposal (money, capital, labor, etc.). In
other words, a PPF shows alternative ways to use
an economy’s resources.
PRODUCTION POSSIBILITIES FRONTIER/CURVE




Concepts/assumptions: Only two products are produced;
resources and technology are fixed
Points on the curve/frontier (A-D) = efficient and using
maximum resources (e.g., full employment)
Points inside the curve (X) = inefficient (e.g.,
unemployment)
Points outside the curve (Y) = unattainable with available
resources; must have economic growth to achieve points
outside PPF
A
B
Cell
phones
X
Y
C
D
Shoes
PRODUCTION POSSIBILITIES FRONTIER:
REVIEW
OPPORTUNITY COST: REVIEW
HOW CAN AN ECONOMY INCREASE ITS
PPF?

Reasons for growth that can increase a country’s
PPF (move the curve to the right):
Accumulation of capital
 Technological advances
 Increase in population
 Available land or improvements to land


Reasons for decline in a PPF (curve moves left):
Decrease in population (what could cause this?)
 Loss of land (through war or natural disaster)
 Decrease in production due to aging population, more
uneducated pop’n, less healthy pop’n

Video Explanation of
PPFs
PPF PRACTICE WITH WHITE BOARDS
STANDARD SSEF2 – REVIEW QUESTIONS
1.
The act of giving up one thing of value to gain another thing of
value is called a/an
a.
b.
2.
Opportunity cost.
Profit.
c. marginal cost.
d. Trade-off
Bill wants to buy a shirt $45 and a hat for $20. However, he
only has $50. If he buys the shirt, then his opportunity cost will
be
a. the cost of the shirt.
b. the cost of the hat.
c. the enjoyment he would have gotten from the hat.
d. how comfortable he will feel in the shirt.
3.
Define the marginal cost and marginal benefit and describe the
role they play in making a rational economic decision.
WORK PERIOD: THURSDAY, JANUARY 12
1.
2.
Prepare a flow map for an economic decision that
you have made recently or that you must make
soon; the flow map should reflect the five steps of
economic decision-making that we reviewed in
class. Then write one paragraph that discusses (1)
the steps or thought process that you went through
to make your decision and (2) the trade-offs and
opportunity costs involved in your decision.
Work on your vocabulary from your personal word
wall sheet; get at least 7 index cards completed.
Each group needs to do two words for the Word
Wall (include the word, its definition, and an
example or illustration); I’ll assign the words to
each group.