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Choices and Decision Making:
• The study of economic begins with the idea that people cannot have everything the need and want.
• Need: Anything that is necessary for survival. (food, shelter…etc.)• Want: Something we desire, but is not
essential to our survival. (xbox, ipod,…etc.)
What is Economics?
• Economics: The study of how people satisfy their wants and needs by making choices.
• People must make choices due to scarcity.• Scarcity: limited quantities of resources, and
unlimited wants. (think of oil)-no matter what it is, sooner or later a limit is always reached.-scarcity always exist because our needs and wants are always greater then our supply.
Scarcity vs. Shortage:
• Shortages: Shortages occur when producers will not or cannot offer goods and services at current prices.
• Shortages can be temporary or long-term (unlike scarcity, which always exists.)
Goods and Services:
• Many Americans find it difficult to understand the idea of scarcity, because when they look around they see goods and services all around them.
• Good: a physical object. (shoes, shirt)• Service: actions or activities that one person
performs for another. (haircut, tutoring)
Factors of Production:
• These are the resources that are used to produce goods and services.
• Land- all natural resources.• Labor- Task completed by a person who is
paid. • Capital- any human made resource that is
used to produce other goods and services. There are 2 different types of capital.
• Physical capital: human made objects used to create goods and services. (Tools)
• Human capital: Knowledge and skills a worker gains through education and experience. (lawyer = education, McDonald’s worker = experience or job training)
Entrepreneurs:
• Entrepreneurs: These are the people who pull resources together in order to create goods and services.
• Ambitious leaders, usually risk takers, who decide exactly how to combine land, labor, and capital resources to create new goods and services.
• Develop original ideas, start businesses, and create new industries.
• Most importantly, entrepreneurs fuel economic growth.
Entrepreneur Assignment:
1. Tell me what business you are going to start, and why you decided on starting that business.
2. Need or Want?3. Good or Service?4. Human and Physical Capital?
Bell Work:
• If you hadn’t come to school today, what would you be doing instead?
• What do they (economists) call this concept?
Trade-Offs:
• Every decision we make in life involves choosing one thing, while giving up another.
• Trade-offs: Trade-offs are all of the alternatives we give up when we choose one thing over another.
• You may choose to sleep late in the morning. • By doing so, your trade-offs may be: • eating breakfast , studying for a test, reading the
newspaper• All decisions involve trade-offs because resources are
limited.
Who Makes Trade-Offs?:
• Individuals- more time at work, less time for hobbies.
• Businesses- must make decisions on how to use land, labor, and capital.
• Society (Countries)- if a country invest more money in one thing, it has less money to spend on another. (guns or butter decision)
Businesses- must make decisions on how to use
Opportunity Cost:
• Opportunity Cost: The most desirable thing given up in a decision.
• Sometimes making a decision is difficult because opportunity cost may be unclear or complicated. (Decision Making Grid)
Alternatives:
Sleep Late Wake Up Early to Study
Benefits: •Enjoy more sleep•Have more energy during the day
•Better grade on test.•Teacher and parental approval.•Personal satisfaction
Decision: Sleep Late Wake up early to study for test,
Opportunity Cost: •Extra study time. •Extra sleep time.
Benefits Lost: •Better grade on test•Teacher/parental approval.•Personal satisfaction
•Enjoy more sleep.•Have more energy during the day
Decision Making Grid
Thinking at the Margin:
• Thinking at the Margin: When you decide how much more or less to do, you are thinking at the margin.
(Decision: study 1, 2, or 3 hours extra for a test.)
Making a Decision at the Margin:
• Making a decision at the Margin: When you look at the opportunity cost and the benefit of a decision, you are making a decision at the margin. (Decision: Study 1, 2, or 3 hours extra for test.)
• Opportunity Cost: Less time to spend with friends.
• Benefit: Passing the test
Bell Work:
• 1. What does the “Guns and Butter Decision” refer to ?
• 2. What is the difference between trade-offs and opportunity cost?
• 3. What is the difference between scarcity and a shortage?
Production Possibilities Graph:
• Economist often use graphs to analyze the choices and trade-offs that people make
• Why? Because graphs show us how one value relates to another.
• Production possibility graph: Shows the alternative ways to use an economy’s resources
S
hirt
s
Shoes
5_
10_
15_
20_
25_
30_
5_
10_
15_
20_
25_
30_
- Underutilization
- Currently Unachievable
- Trade-Offs
What the Graph Shows:
• 1. Efficiency- using resources in such a way as to maximize the production or output of goods and services.
• 2. Growth-Increases in technology will cause output to increase.
• 3. Cost-The opportunity cost of producing one good over another.