Transcript Presentation

Chapter 1
What is Economics?
Section 1
Scarcity and the Science of
Economics
I. Explain the nature of scarcity and
show its relationship to economics.

The social science chiefly concerned with
the way individuals and societies choose
to use their limited resources, which have
alternative uses, to produce goods and
services, which satisfy needs and wants,
for present and future consumption.
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I. Explain the nature of scarcity and
show its relationship to economics.

A. TINSTAAFL – There is no such thing as
a free lunch.

B. Scarcity – The condition that arises
because society does not
have enough resources to
produce all the things
people would like to have.

C. Unlimited Wants – Limited Resources
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II. Describe the factors of production.

A. Land – “gifts of nature” not created by
human effort.
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II. Describe the factors of production.

B. Capital – tools, equipment, and
factories used in
production.
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II. Describe the factors of production.

B. Capital

1) Financial Capital – money
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II. Describe the factors of production.

C. Labor – people’s efforts, abilities, and
skills.
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II. Describe the factors of production.

D. Entrepreneurs – risk taker in search of
profit.
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Figure 1.2
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III. Examine the three basic economic
questions each society must decide.

A. What to Produce?

B. How to Produce?

C. For Whom to Produce?
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IV. Define economics and identify the
four key elements within its scope.

A.
Description – What is produced and
who gets how much.

B. Analysis – Why are prices what they
are?
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IV. Define economics and identify the
four key elements within its scope.

C. Explanation – It is useful and
necessary to
communicate to others
economic activities.

D. Prediction – Anticipating consequences
of different courses of
action.
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IV. Define economics and identify the
four key elements within its scope.
Individuals
 Microeconomics






study the behavior of the individual
constituents of an economy
House holds
Firms
One price
One industry
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IV. Define economics and identify the
four key elements within its scope.
Society
 Macroeconomics







study the behavior of the economy as a whole
Employment
Inflation
Money and banking
Aggregate demand
Aggregate supply
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END OF SECTION 1
Chapter 1
What is Economics?
Section 2
Trade-Offs and
Opportunity Costs
I. Understand that trade-offs are
present whenever choices are made.

A. Trade-off –
 An alternative choice.

B. Decision-making grid  A tool that can be used to help make
an economic decision by identifying
alternatives and criteria to evaluate.
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II. Discover Opportunity Costs

A. Opportunity Cost –
 The
cost of the next best alternative
when a choice is made.
 Refers to the value of a trade-off.
 Incurred when trade-offs are made.
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III. Evaluate the opportunity cost of
production possibilities frontiers.

A. Production Possibilities Frontier (PPF)
 Diagram
representing various
combinations of goods and services
when all resources are fully
employed.
 Guns
and Butter
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III. Evaluate the opportunity cost of
production possibilities frontiers.

C. Characteristics of the PPF
1) Illustrates the concept of
opportunity costs.
 2) Based on full employment of all
productive resources.
 3) It is used by economists as a tool for
description and analysis.

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III. Evaluate the opportunity cost of
production possibilities frontiers.

Any point on the PPC
 efficiency
Production Possibilities for Econoland


Any point outside the PPC
 cannot be reached at
the present time- a goal
Any point inside the PPC
 inefficiency
Guns in Billions of units per year
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10
8
6
4
2
0
2
4
6
8
10
12
Butter in Billions of units per year
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III. Evaluate the opportunity cost of
production possibilities frontiers.
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III. Evaluate the opportunity cost of
production possibilities frontiers.

D. When a country produces on its PPF,
 The
decision to produce more of
Product/Good A means,
 Less
of Product/Good B must be
produced.
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III. Evaluate the opportunity cost of
production possibilities frontiers.

Shift outward of the PPC
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
Specialization



Absolute Advantage
Comparative Advantage
Increase Productivity
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10
8
6
4

Capital vs. Consumption
2
0
2

Present vs. Future
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6
8
10
12
14
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END OF SECTION 2
Chapter 1
What is Economics?
Section 3
Basic Economic Concepts
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I. Understand the difference between
needs and wants, and goods and services.

A. Need
 Basic requirement for survival.
 Physical or emotional.
 Oxygen, water, and food.

B. Want
 Means of expressing a need.
 Specific example of a need.
 Can live without.
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I. Understand the difference between
needs and wants, and goods and services.

C. Goods
 Tangible commodity
 1) Consumer good
 2) Capital good
 3) Durable good = 3 + years
 4) Non-durable good = < 3 years

D. Service
 Work that is intangible
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II.
Explain the relationship among
value, utility, and wealth.

A. Value
 Worth expressed in dollars and cents.
 To have value, there has to be utility.

B. Utility
 Capacity to be useful to someone.

C. Wealth
 The sum of economic products that
are tangible, scarce, useful, and
transferable.
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III. Describe the importance of
productivity.

A. Productivity
 The efficient use of productive
resources.

B. Specialization
 Do whatever task you are able to do
best.
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III. Describe the importance of
productivity.

C. Division of Labor
 Workers perform fewer tasks more
frequently.

D. Human Capital
 The sum of skills, abilities, health, and
motivation of people.
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IV. Understand the importance of economics
to the American free enterprise system.

A. Economic interdependence
 Actions in one part of the country or
the world have an economic impact
on what happens elsewhere.
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IV. Understand the importance of economics
to the American free enterprise system.

B. Market
 Location or other mechanism that
allows buyers and sellers to deal or
exchange economic products.
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IV. Understand the importance of economics
to the American free enterprise system.

C. Standard of living
 Quality of life.

D. Free Enterprise Economy
 Consumers and privately owned
businesses make the majority
economic decisions.
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END OF CHAPTER 1