Transcript Fundamental PP - Dublin City Schools

UNIT 2: The Choice is
Yours!
Basic economic concepts, choices, rational decision making,
investment in education/training, etc
Unit 2 standards
SSEF1 The student will explain why limited productive resources and
unlimited wants result in scarcity, opportunity costs, and tradeoffs for
individuals, businesses, and governments.
a. Define scarcity as a basic condition that exists when unlimited wants exceed
limited productive resources.
b. Define and give examples of productive resources (e.g., land (natural), labor
(human), capital (capital goods), entrepreneurship).
c. List a variety of strategies for allocating scarce resources.
d. Define opportunity cost as the next best alternative given up when individuals,
businesses, and governments confront scarcity by making choices.
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 tradeoffs between
two options.
b. Explain that rational decisions occur when the marginal benefits of an action
equal or exceed the marginal costs.
Unit 2 standards (continued)
SSEF6 The student will explain how productivity, economic growth, and
future standards of living are influenced by investment in factories,
machinery, new technology, and the health, education, and training of
people.
a. Define productivity as the relationship of inputs to outputs.
b. Give illustrations of investment in equipment and technology and explain
their relationship to economic growth.
c. Give examples of how investment in education can lead to a higher standard
of living.
SSEPF1 The student will apply rational decision making to personal
spending and saving choices.
a. Explain that people respond to positive and negative incentives in
predictable ways.
b. Use a rational decision making model to select one option over another.
c. Create a savings or financial investment plan for a future goal.
Factors of Production
(Productive Resources)
GPS

a)
SSEF1 The student will explain why
limited productive resources and
unlimited wants result in scarcity,
opportunity costs, and tradeoffs for
individuals, businesses, and
governments.
Define and give examples of productive
resources (e.g., land (natural), labor
(human), capital (capital goods),
entrepreneurship).
Factors of Production

What went into making this?
What went into this?
Rubber (from
Malaysia)
machines
metal
Someone who
put all of this
together.
wood
graphite
4 Categories of Productive
Resources (Factors of Production)
LAND
LABOR
- Natural, renewable resources
- Human resources, people
-wood, rubber, graphite, land,
animals
-MENTAL and PHYSICAL
CAPITAL
- A produced good used in the
production of another good
-Machines, computers, buildings,
etc
ENTREPRENUERSHIP
-The person or group responsible
for putting the other 3 together to
produce something
Opportunity Costs
Opportunity Costs

OPPORTUNITY COSTS: the value of
the NEXT BEST alternative given up
when a choice is made
• NEXT BEST is key, the cost is not
everything you give up
• Opportunity cost is not always money
Opportunity Costs Examples
Mr. Cannon really wants BOTH goods:
$3,500
$1,000
Opportunity Costs Examples
He decides to spend his money on:
$3,500
What was the price he paid?
What was his opportunity cost?
Opportunity Costs

You have $100 to spend at the mall,
rank the following in the order (1, 2,
3) you would purchase them.
DVD set of a TV Show($60)
New outfit ($85)
New pair of shoes ($65)
Production Possibilities
Curve (PPC)
GPS


SSEF2 The student will give
examples of how rational
decision making entails
comparing the marginal benefits
and the marginal costs of an
action.
Illustrate by means of a production
possibilities curve the trade offs
between two options.
PPC

a graph that shows the trade-off
between two production options
• A visual representation of
OPPORTUNITY COSTS

2 Assumptions:
• The company/country is ONLY
producing the two goods on the graph
• The company/country desires to use
ALL of their resources
PPC – an example


Suppose a
country makes
Pencils and
Pens.
If they devoted
ALL of their
resources to
pencils, they
could make 500
a day
500
300
…..to pens, they could
make 300 a day
PPC – an example
500
Pencils
The country/business can
produce anywhere on the line
when they use ALL of their
resources
Pens
300
PPC – an example
If the country is producing ONLY
pencils, and they want pens, they
have to give up pencils.
500
450
Pencils
The more pens they want…..
200
125
200
Pens
300
PPC – an example
500
At point X, the country or
business is producing
below its possibilities and
is INEFFICIENT
Y
Pencils
200
At point Y, the country or
business is producing
beyond its possibilities and
is NON-SUSTAINABLE.
X
75
Pens
300
Journal #5: Graph this country’s
PPC
GOOD
A
200
180
150
100
25
0
GOOD
B
0
25
50
75
100
110
After graphing, answer these questions:
1. Assume the country is currently
producing 180 of good A and 25
of Good B. If the country wants
to make 75 of Good B, how
many of good A must they give
up?
2. If the country was producing 150
of Good A and 30 of Good B,
what could you conclude about
the country’s economy?
Productivity and
Investment
GPS

Define productivity as the
relationship of inputs to outputs.
Productivity

We measure productivity as the
relationship of inputs to
outputs


For a business it’s the cost of all their
resources compared to their revenue
For a country it’s the cost of all of
their resources as compared to their
GROSS DOMESTIC PRODUCT (GDP)
Improving Productivity
• Increased Capital
 More factories, tools, machines, etc
• Improve technology
 Faster machines, multi-tasking devices, machines
with larger capacity
• Train/educate workers
 Specialization, new techniques, ability to USE
technology
• Improve entrepreneurship
 Better organization of resources, motivational tools,
leadership, worker morale
Headlines



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
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

HEADLINE 1: WHIRLPOOL FACTORY INCREASES
PRODUCTIVITY
What are some steps the Whirlpool Factory could have taken
to increase productivity?
How could this increase in productivity benefit the workers?
HEADLINE 2: U.S. PRODUCTIVITY RISES RAPIDLY FOR
6TH CONSECUTIVE QUARTER
How can rising productivity benefit workers? Producers? The
nation?
Could there be some disadvantages of increasing
productivity, at least to some people?
HEADLINE 3: PRODUCTIVITY LAGS FIRST THREE
QUARTERS OF 93
Why is lagging productivity a problem for the nation,
Economic Growth
GPS


Give illustrations of investment in
equipment and technology and
explain their relationship to economic
growth.
Give examples of how investment in
education can lead to a higher
standard of living.
Economic Growth




For countries, we look at economic growth
in terms of GROSS DOMESTIC PRODUCT
(GDP) and GDP PER CAPITA
GDP = dollar amount of all goods and
services produced in an economy
GDP Per Capita = GDP divided by the
population
What makes an economy grow?
Factors Affecting Economic Growth


High Investment in physical and
human capital
Greater economic freedom
• lower taxes, fewer regulations,
protecting property rights




Strong Incentives to Save
Competitive Markets
Political Stability
Free Trade
Historic examples

Cotton Gin in America
• Before Cotton Gin: 1 man = 1 pound of clean
cotton
• After Cotton Gin: 1 man = 50 pounds of clean
cotton
Historic examples

Assembly Line
• Before AL: .08 car frame in an hour
(1913)
• After AL: .67 car frame in an hour
(1914)
Historic Examples

Wheat Harvesting (Bushels in 1 hour)
1800
1900
2000
.26
.96
25
Literacy Rates
Country
Literacy
Rate
Bahamas 95.6%
GDP per
capita
$25,000
Australia 99%
$36,300
Bolivia
86%
$4,000
US
99%
$48,500
Sudan
61%
$2,200
Rank these countries

Country A: Argentina
Population: 37,384,816
PerCapita GDP: $12,900
Literacy Rate: 96.2%
•
•
•
•
Country C: Nigeria
Population: 126,635,626
PerCapita GDP: $950
Literacy Rate: 57.1%
•
•
•
•
Country B: Japan
Population: 126,771,662
PerCapita GDP: $24,900
Literacy Rate: 99%
•
•
•
•
Country D: Russia
Population: 145,470,196
PerCapita GDP: $7,700
Literacy Rate: 98%
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•
•
•
•
Country E: Singapore
Population: 4,300,419
PerCapita GDP: $26,500
Literacy Rate: 93.5%
Economic Growth
Capital Goods
Consumer Goods
•Not 1 magical thing, combination of several factors
•Increasing overall productivity is key
Factors Affecting Economic Growth


High Investment in physical and
human capital
Greater economic freedom
• lower taxes, fewer regulations,
protecting property rights




Strong Incentives to Save
Competitive Markets
Political Stability
Free Trade
Different PPC graphs can show
how different variables affect an
economy.
Different PPC graphs can show
how different variables affect
an economy (continued).


A natural disaster such as a hurricane has the effect of Case
1 on a local economy. Here, both capital (buildings and
equipment) and labor are lost due to the calamity. Since
the region’s production inputs are reduced, so too is its
PPC, moving from A1 to A2. The region may recover over
time, but the immediate effect of the disaster is to move
the entire PPC inward.
Conversely, consider a local area with a booming economy;
people are moving there in droves (providing labor), and
businesses are investing in the area to take advantage of
the increased number of consumers and potential
employees. This would lead to a condition illustrated in
Case 2, where the entire PPC shifts outward.

Different PPC graphs can show
how different variables affect
Now imagine a small town has just
an economy
(continued).
received
a large economic
development
grant from the federal government. The
amount of capital available to this
economy has greatly increased while its
labor pool remains unchanged, so a
movement like that shown in Case 3
occurs. The new PPC, C2, shows how the
investment will create an enhanced ability
to produce capital goods. Lastly, increases
in labor inputs (such as a higher number
of college graduates) will lead to Case 4.
Here, the boost to the labor force allows
RATIONAL DECISION
MAKING
Rational Decision Making


Analyzing costs and benefits
before making a decision
MARGINAL thinking is key
• What is the cost/benefit of my NEXT
decision
• Past decisions don’t matter
• this affects PRODUCERS AND
CONSUMERS
Costs and Benefits

For producers, this is simply
measured in dollars
• Marginal costs of the inputs vs. marginal
revenue

For consumers, it is trickier
• We measure benefits in terms of
UTILITY
• How “useful” is the item or service
• We use “utils” as the measure for this
Another Example

You purchased a ticket to see



10 minutes into the movie, you
realize it is going to be
horrible.
DO YOU STAY OR LEAVE?
Write down your answer and
reason WHY.
RDM Example (cont’d)
STAY
LEAVE
COST
BENEFIT
Lost
See end of
opportunity to movie
do next best Can discuss
thing
movie with
others
Can’t discuss Can do next
with others
best thing
which may
Won’t see
Another example

A person opens a business making
sandwiches. He’s purchased a store
and all of the food products, now he
wants to hire some people. He
decides to hire two people to start
with and pay them $50 a day. His
costs/benefits sheet for a month
looks like this:
1 Month
Rent/Food/Entrepreneurship = $750
Worker #
Cost
1
$750
2
$750
Production Price/San
d
250
5
sandwiches
250
5
sandwiches
Total Costs: 750+1500=2250
Total Output: 500 x 5 = 2500
1 Month
Rent, Food, Entrepreneurship - $750
Worker #
Cost
Production Price/Sand
1
$750
250
5
2
$750
250
5
3
$750
200
5
4
$750
100
5
Should he hire worker #3? Why?
What about #4? Why?
What will be on the test?

Scarcity

• Define them
• Pick them from an
example
• definition
• examples

Opportunity cost
• definition
• examples

Production
Possibilities Curve
• What do they
show?
• interpret points
Factors of production

Productivity/Growth
• What causes it
• How do we measure it

Rational Decision
Making/Marginal
Analysis
• What is marginal
Scarcity
Georgia Performance Standard

a)
d)
SSEF1 The student will explain why
limited productive resources and
unlimited wants result in scarcity,
opportunity costs, and tradeoffs for
individuals, businesses, and
governments.
Define scarcity as a basic condition that
exists when unlimited wants exceed
limited productive resources.
Define opportunity cost as the next best
alternative given up when individuals,
businesses, and governments confront
scarcity by making choices.
Scarcity

SCARCITY: a condition that exists
when UNLIMITED needs/wants
exceed the LIMITED available
resources
• The central problem in economics, all
things revolve around scarcity
• Must be a want/need for the item and a
limited amount
• There are DEGREES of scarcity
LESS SCARCE
- Large quantity,
few uses, low
demand
MORE SCARCE
- Small quantity,
many uses, high
demand
Scarcity Situations



Old books that,
for 2 years, have
sat on a shelf
that reads “Free!
Take One.”
Oil in Saudi
Arabia
One book, 5
students needing
to study the book
for a quiz






Oil in England
A $10 bill to a
millionaire
An MVP
basketball player
A copy of Mr.
Cannon’s tests
VHS Tapes to a
10 year old
Knowledge of
MORE SCARCE
- Small quantity,
many uses, high
demand
LESS SCARCE
- Large quantity,
few uses, low
demand
Old
books that, for 2 years, have
sat on a shelf that reads “Free!
Take One.”
Oil in Saudi Arabia
One book, 5 students needing to
study the book for a quiz
Diamonds
Oil in England
A $10
An
bill to a millionaire
MVP basketball player
A copy
of Mr. Makaya’s tests
VHS
Tapes to a 10 year old
Knowledge
of Economics
Sample Questions for Unit 2
1 Opportunity cost is BEST
described as the
A most expensive resource used in
production
B sum of all production costs
C value of the next best alternative
forgone when a choice is made
D monetary value of all alternatives
forgone when a choice is made
Answer to 1


1. Answer: C Standard: Scarcity and
opportunity cost
Opportunity cost is the value of the
next best economic choice you did
NOT make. Choice D is the sum of all
possible opportunity costs, but
opportunity costs are not added up.
Only the best alternative forgone,
choice C, counts as the opportunity
cost.
2 Use this graph to answer the
question.
What BEST explains the shift of the
production possibilities curve from
A improvements in agricultural
B1 to B2?
technology
B inflationary increases in process
C higher costs of producing corn
D higher costs of producing wheat
Answer to 2


2. Answer: A Standard: Investment
and economic growth
An outward expansion of a
production possibilities frontier
means greater productivity. One way
greater productivity can be achieved
is by improving technology.
Question 3
3 Alex and Dylan mow and trim lawns.
Currently, each man mows and trims
a lawn by himself, but the process
takes a long time. They would MOST
likely improve their efficiency if
A Alex and Dylan mow a lawn and then trim
it together
B Alex mows a lawn while Dylan trims the
same lawn
C Alex trims Dylan’s lawn while Dylan trims
Alex’s lawn
Answer 3
3. Answer: B Standard: Benefits of specialization
One of the best ways to improve efficiency is to
specialize, which means each person in a
production process concentrates on a specific
task. Choice A would still require each man to
mow and trim, while choice C simply changes the
lawn each man is trimming. Choice D, on the
other hand, reduces the total number of lawns
they mow but does not improve the efficiency
with which they complete their task. Only choice
B would be a specialization of labor. In this case,
Dylan now does one task in the production
process (trims) while Alex does another task
(mows). According to economic theory, this
specialization will make each man better at his
respective task and reduce the time it takes to
change from one task to another, thereby