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. WHAT to produce? Food, housing, military equipment, green space, etc.

2. HOW to produce? More automation and fewer workers? Fewer machines and more workers?

3. 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

A basic requirement for survival such as food, shelter, clothing

Goods and services one desires and would obtain if he/she could but that are not necessary for survival

Needs Wants

SPONGE: TUESDAY, JANUARY 10

1. What are the four factors of production?2. 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. Renewable: A resource that can be

replenished (replaced) over time; e.g., timber

2. 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, assembly-line 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 risk-

taking 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 Walton; Ray Kroc

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 productThe more scarce an item is, the more it

costsExample: 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 regulationsPrice 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 fallRationing – 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 asa. 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 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.

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 alternatives

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 alternatives

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 another action/choice

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

Criteria #2

Criteria #3

Criteria #4

Criteria #5

Option 1

Option 2

Option 3

Option 4

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 are unavoidable b/c resources

are limited 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

Shoes

AB

C

D

X

Y

Cell phones

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. Opportunity cost. c. marginal cost.b. Profit. d. Trade-off

2. 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. 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.

2. 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.