ECONOMICSECONOMICS

CH. ONECH. ONE: WHAT IS : WHAT IS ECONOMICS?ECONOMICS?

1. 1. VOLUNTARY EXCHANGEVOLUNTARY EXCHANGE IMAGINARY DIALOGUE IMAGINARY DIALOGUE

BETWEENBETWEEN PRODUCERPRODUCER AND AND CONSUMERCONSUMER WHERE WHERE $$ IS IS EXCHANGED FOR EXCHANGED FOR G/SG/S

IT IS RESPONSIBLE FOR IT IS RESPONSIBLE FOR ORGANIZING ORGANIZING HOW G/S WILL HOW G/S WILL BE PRODUCED & DISTRIBUTEDBE PRODUCED & DISTRIBUTED

Here’s what it would look like Here’s what it would look like if it wasn’t imaginary…if it wasn’t imaginary…

LET’S TAKE A LOOK LET’S TAKE A LOOK AT NUTTY AT NUTTY

CHOCOLATE BARS…CHOCOLATE BARS…(Ch. 1: Nutty Bar Wksht.)(Ch. 1: Nutty Bar Wksht.)

2. 2. WHERE DO MARKETS EXISTWHERE DO MARKETS EXIST??

ANYWHERE THAT ANYWHERE THAT VOLUNTARY VOLUNTARY EXCHANGEEXCHANGE TAKES TAKES PLACEPLACE

3. 3. DEFINE GOODS/SERVICESDEFINE GOODS/SERVICES

GOODSGOODS:: ANYTHING THAT YOU CAN ANYTHING THAT YOU CAN SEE OR TOUCH SEE OR TOUCH (TANGIBLE)(TANGIBLE)

~ PIZZA, REFRIGERATOR, GAS~ PIZZA, REFRIGERATOR, GAS SERVICESSERVICES:: ANYTHING THAT YOU ANYTHING THAT YOU

CAN NOT SEE OR TOUCH CAN NOT SEE OR TOUCH (INTANGIBLE)(INTANGIBLE)

~ PIZZA DELIVERY,REFRIGERATOR ~ PIZZA DELIVERY,REFRIGERATOR REPAIR SERVICE, FULL-SERVICE REPAIR SERVICE, FULL-SERVICE GAS STATIONGAS STATION

4. 4. SCARCITYSCARCITYNOT ENOUGH NOT ENOUGH RESOURCESRESOURCES TO TO SATISFY SATISFY EVERYONE’S EVERYONE’S WANTSWANTS AND AND NEEDSNEEDS

5. 5. 4 PRODUCTIVE RESOURCES4 PRODUCTIVE RESOURCES NATURALNATURAL:: TREE, SUNLIGHT, WATER TREE, SUNLIGHT, WATER HUMANHUMAN:: MANUAL, MENTAL LABOR MANUAL, MENTAL LABOR CAPITALCAPITAL:: ANY G/S USED IN THE ANY G/S USED IN THE

PRODUCTION/DISTRIBUTION OF PRODUCTION/DISTRIBUTION OF ANOTHER G/S (ANOTHER G/S (TRUCK, COMPUTER, TRUCK, COMPUTER, MACHINE PRESSMACHINE PRESS))

ENTREPRENEURSHIPENTREPRENEURSHIP:: A RISKTAKER A RISKTAKER WHO CREATES A NEW G/S OR WHO CREATES A NEW G/S OR EXPANDS ON AN EXISTING ONE EXPANDS ON AN EXISTING ONE (BILL (BILL GATES, DONALD TRUMP, JAY-Z)GATES, DONALD TRUMP, JAY-Z)

TRY AND THINK OF A G/S THAT TRY AND THINK OF A G/S THAT DOESN’T USE ALL 4 IN IT’S DOESN’T USE ALL 4 IN IT’S PRODUCTION AND/OR DISTRIBUTION PRODUCTION AND/OR DISTRIBUTION PROCESSPROCESS ((EXTRA CREDIT IF U CANEXTRA CREDIT IF U CAN))

LET’S TRY SOME LET’S TRY SOME KELLOGGS CORN KELLOGGS CORN FLAKES FLAKES (ESL p. 4)(ESL p. 4)

6. 6. ECONOMICSECONOMICSTHE STUDY OF PRODUCERS THE STUDY OF PRODUCERS AND CONSUMERS AND CONSUMERS ENGAGING IN ENGAGING IN VOLUNTARY VOLUNTARY EXCHANGEEXCHANGE IN IN MARKETSMARKETS WHERE $ IS EXCHANGED WHERE $ IS EXCHANGED FOR FOR G/SG/S THAT ARE MADE THAT ARE MADE FROM FROM SCARCE RESOURCESSCARCE RESOURCES

7. 7. OPPORTUNITY COSTOPPORTUNITY COST THE NEXT BEST THING YOU THE NEXT BEST THING YOU

COULD DO/BUY INSTEAD OF COULD DO/BUY INSTEAD OF WHAT YOU CHOSE TO DO/BUYWHAT YOU CHOSE TO DO/BUY

EX.: EX.: IF I HAD $5.00 AND CHOSE IF I HAD $5.00 AND CHOSE TO BUY McDONALD’S INSTEAD TO BUY McDONALD’S INSTEAD OF TACO BELL, THAN OF TACO BELL, THAN TACO TACO BELL BECOMES THE BELL BECOMES THE OPPORTUNITY COST OF OPPORTUNITY COST OF BUYING McDONALD’SBUYING McDONALD’S

7. 7. OPPORTUNITY COSTSOPPORTUNITY COSTS MORE EXAMPLESMORE EXAMPLES:: IF I HAD $120.00 AND IF I HAD $120.00 AND

BOUGHT A PAIR OF BOUGHT A PAIR OF TIMBERLANDS INSTEAD OF A TIMBERLANDS INSTEAD OF A PAIR OF NIKE, THAN PAIR OF NIKE, THAN THE THE NIKE PAIR HAVE BECOME MY NIKE PAIR HAVE BECOME MY OPPORTUNITY COST FOR OPPORTUNITY COST FOR BUYING THE PAIR OF BUYING THE PAIR OF TIMBERLANDSTIMBERLANDS

ESL p. 6 (question #6)ESL p. 6 (question #6) Microwave OvensMicrowave Ovens

-500,000 = equipment-500,000 = equipment-200,000 = production costs/year-200,000 = production costs/year-700,000 = deficit -700,000 = deficit +225,000 = projected annual sales+225,000 = projected annual sales-475,000 = deficit after year 1 sales-475,000 = deficit after year 1 sales+25,000 profit/year (225,000 – 200,000)+25,000 profit/year (225,000 – 200,000)* it will take 19 years to break even; 20 years to make a profit * it will take 19 years to break even; 20 years to make a profit ($25,000.00)($25,000.00)

U.S. Treasury BondsU.S. Treasury Bonds-500,000 = investment-500,000 = investment+50,000 = interest check government will pay at end of year 1+50,000 = interest check government will pay at end of year 1-450,000 = deficit at end of year 1-450,000 = deficit at end of year 1+50,000 = interest payments each year+50,000 = interest payments each year* it will take 9 years to break even; 10 years to make a profit * it will take 9 years to break even; 10 years to make a profit ($50,000.00)($50,000.00)

8. TRADE OFF DECISION

DOING/BUYING A LITTLE LESS OF ONE THING SO YOU COULD DO/BUY A LITTLE MORE OF SOMETHING ELSE.

EXAMPLE: WALKING THRU THE FOOD COURT AT

GREAT LAKES MALL WITH $7.00 WANTING TO BUY 2 GORDITAS, AND A 7-

LAYER BURRITO AND A PEPSI FOR AROUND $6.00

ALSO WANTING TO BUY 2 CHICK FIL-A SANDWICHES, AN ORDER OF LARGE WAFFLE FRIES AND A COKE FOR AROUND $6.00

T.O.: BUYING 1 GORDITA, 1 BEAN BURRITO, 1 CHICK FIL-A SANDWICH AND A COKE FOR AROUND $7.00

EXAMPLE: WALKING INTO FYE AT GREAT LAKES

MALL WITH $25.00 WANTING TO BUY THE NEW YOUNG

JEEZY CD “HOLLA AT YA” FOR $19.99 ALSO WANTING TO BUY KANYE WEST’S

NEW CD “SHAMA LAMA DING DONG” FOR $15.99

T.O.: BUYING AN ILLEGAL ‘BURNT’ CD FOR EACH AT $10.00 A POP

LAST EXAMPLE:WALKING INTO CVS WITH $10.00WANTING TO BUY A BOTTLE OF

TUMS FOR $6.99ALSO WANTING TO BUY A LARGE

BOTTLE OF EX-LAX FOR $8.99T.O.:BUYING A ROLL OF TUMS

FOR $.89 AND THEN BUYING A SMALL BOTTLE OF EX-LAX FOR $4.99

HEY HONEY!WHERE’S THE DAMN TOILET

PAPER?

We’re out! I We’re out! I told you to told you to

get some on get some on your way your way

home from home from workwork

Ahhh crap! That’s just great!

Looks like this Reader’s Digest will have to do

99. How does a smart consumer/producer How does a smart consumer/producer know when to stop doing/buying one know when to stop doing/buying one thing and start doing/buying the other thing and start doing/buying the other thing when making a trade-off decisionthing when making a trade-off decision When the cost of doing/buying When the cost of doing/buying

the first thing starts to the first thing starts to outweigh its benefitsoutweigh its benefits

COST – BENEFIT ANALYSISCOST – BENEFIT ANALYSIS Ex.: I don’t have much time to Ex.: I don’t have much time to

get ready in the morning and if get ready in the morning and if I am done pooping and I am done pooping and continue to sit on the toilet, continue to sit on the toilet, that’s not good cost-benefit that’s not good cost-benefit analysis.analysis.

LET’S GO OVER ESL LET’S GO OVER ESL pp. 8 - 9pp. 8 - 9

10. 10. Define Production-Possibility CurveDefine Production-Possibility Curve11. 11. What type of decision does it What type of decision does it illustrateillustrate?? A curve/graph illustrating A curve/graph illustrating

the maximum production the maximum production possibility combinations possibility combinations between doing/buying 2 between doing/buying 2 thingsthings

It illustrates a Trade-off It illustrates a Trade-off DecisionDecision

LET’S GO OVER ESL LET’S GO OVER ESL p. 7p. 7

ExampleExample: a PPC of a trade-off between : a PPC of a trade-off between building highways or aircraft carriersbuilding highways or aircraft carriers

H 900 I G 600 HW 300 AY 0 1 2 3 AIR CRAFT CARRIERS

ExampleExample: a PPC of a trade-off decision : a PPC of a trade-off decision between studying 4 Economics between studying 4 Economics &Geometry (120 minutes total)&Geometry (120 minutes total)

105

90 75

GG 60 45 30 15

0 15 30 45 60 75 90 105

EE

Ilene Dover is an industrial Ilene Dover is an industrial Tech. teacher at Richmond Tech. teacher at Richmond Hts. High School. She is Hts. High School. She is struggling to find the right struggling to find the right combination of ‘project combination of ‘project time’ vs. ‘clean-up time’ for time’ vs. ‘clean-up time’ for her students. Help her her students. Help her make a PPC for her make a PPC for her 6060 min. min. class. Make class. Make 3 3 combinationscombinations

ExampleExample: a PPC of a trade-off between : a PPC of a trade-off between minutes spent ‘working on project’ & minutes spent ‘working on project’ & ‘room clean-up‘room clean-up

P 60R O 40 J E 20 CT 0 20 40 60 ROOM CLEAN-UP

ExampleExample: a PPC of a trade-off decision : a PPC of a trade-off decision between producing an Arion 35Z PC and between producing an Arion 35Z PC and an Arion 35X Laptop (an Arion 35X Laptop ($500,000.00$500,000.00))

AA 100

35Z35Z 75

50 25

0 10 12.5 20 30 37.5 40 50

Arion35X LaptopArion35X Laptop

100 x $5,000.00 = $500,000.00

This means that they can not make

any laptops (0)

75 x $5,000.00 = $375,000.00

$500,000.00 - $375,000.00 =

$125,000.00 (12.5 x $10,000.)

25 x $5,000.00 = $125,000.00$500,000.00 - $125,000.00 = $375,000.00 (37.5 x $10,000.)

50 x $10,000.00 = $500,000.00

This means that they can not make any Arion 35Z’s(0)

ExampleExample: a PPC of a trade-off decision : a PPC of a trade-off decision between studying 4 Economics between studying 4 Economics &Geometry (120 minutes total)&Geometry (120 minutes total)

105

90 75

EE 60 45 30 15

0 15 30 45 60 75 90 105

GG

12. 12. How does ‘How does ‘Voluntary ExchangeVoluntary Exchange’ answers’ answers the 3 questions all econ. Systems strive tothe 3 questions all econ. Systems strive to answeranswer??

WhatWhat g/s will we produce? g/s will we produce? Those g/s that consumers wantThose g/s that consumers want HowHow will we produce them? will we produce them? Producers will make them as Producers will make them as

efficiently as possible (efficiently as possible (high high quality/low pricequality/low price))

WhoWho will receive them once they will receive them once they are done?are done?

Whoever can afford themWhoever can afford them

LET’S BEGIN CH. 1: LET’S BEGIN CH. 1: PPC WKSHT.PPC WKSHT.