Economics: Principles in Action C H A P T E R  1 What Is Economics?
Section 1 – Scarcity and the Factors of Production
What Is Economics? <ul><li>Economics is the study of how people make choices to satisfy their wants. </li></ul><ul><li>For...
Scarcity and Shortages <ul><li>Scarcity  occurs when there are limited quantities of resources to meet unlimited needs or ...
The Factors of Production <ul><li>Land   All natural resources that are used to produce goods and services. </li></ul><ul>...
The Factors of Popcorn Production
Section 1 Review Questions <ul><li>1. What is the difference between a good and a service? </li></ul><ul><li>2. Why is the...
Section 2 – Opportunity Cost
Trade-offs and Opportunity Cost <ul><li>All individuals and groups of people make decisions that involve trade-offs. </li>...
The Decision-Making Grid <ul><li>Economists encourage us to consider the benefits and costs of our decisions. </li></ul>Ka...
Thinking at the Margin <ul><li>When you decide how much more or less to do, you are  thinking at the margin. </li></ul>
Section 3 –  Production Possibilities Graph
<ul><li>A  production possibilities graph  shows alternative ways that an economy can use its resources.  </li></ul><ul><l...
Efficiency <ul><li>Efficiency  means using resources in such a way as to maximize the production of goods and services.  A...
Growth <ul><li>Growth   If more resources become available, or if technology improves, an economy can increase its level o...
Cost <ul><li>Cost  A production possibilities graph shows the cost of producing more of one item.  To move from point  c  ...
<ul><li>Law of Increasing Costs – states that as production switches from one item to another more and more resources are ...
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Chapter 1 What Is Economics

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Chapter 1 What Is Economics

  1. 1. Economics: Principles in Action C H A P T E R 1 What Is Economics?
  2. 2. Section 1 – Scarcity and the Factors of Production
  3. 3. What Is Economics? <ul><li>Economics is the study of how people make choices to satisfy their wants. </li></ul><ul><li>For example: </li></ul><ul><li>You must choose how to spend your time. </li></ul><ul><li>Businesses must choose how many people to hire . </li></ul>
  4. 4. Scarcity and Shortages <ul><li>Scarcity occurs when there are limited quantities of resources to meet unlimited needs or desires. </li></ul><ul><li>Shortages occur when producers will not or cannot offer goods or services at current prices. </li></ul>
  5. 5. The Factors of Production <ul><li>Land All natural resources that are used to produce goods and services. </li></ul><ul><li>Labor Any effort a person devotes to a task for which that person is paid. </li></ul><ul><li>Capital Any human-made resource that is used to create other goods and services. </li></ul>
  6. 6. The Factors of Popcorn Production
  7. 7. Section 1 Review Questions <ul><li>1. What is the difference between a good and a service? </li></ul><ul><li>2. Why is the idea of scarcity a starting point for thinking economically? </li></ul><ul><li>3. How is scarcity different from shortages? </li></ul><ul><li>4. Describe the three factors of production. </li></ul><ul><li>5. What special advantages does physical capital offer? </li></ul><ul><li>6. What role do entrepreneurs play in the economy? </li></ul>
  8. 8. Section 2 – Opportunity Cost
  9. 9. Trade-offs and Opportunity Cost <ul><li>All individuals and groups of people make decisions that involve trade-offs. </li></ul>The most desirable alternative given up as a result of a decision is known as opportunity cost . Trade-offs are all the alternatives that we give up whenever we choose one course of action over others.
  10. 10. The Decision-Making Grid <ul><li>Economists encourage us to consider the benefits and costs of our decisions. </li></ul>Karen’s Decision-making Grid Alternatives Sleep late Wake up early to study Benefits <ul><li>Enjoy more sleep </li></ul><ul><li>Have more energy during the day </li></ul><ul><li>Better grade on test </li></ul><ul><li>Teacher and parental approval </li></ul><ul><li>Personal satisfaction </li></ul>Decision Sleep late Wake up early to study for test Opportunity cost Extra study time Extra sleep time Benefits forgone <ul><li>Better grade on test </li></ul><ul><li>Teacher and parental approval </li></ul><ul><li>Personal satisfaction </li></ul><ul><li>Enjoy more sleep </li></ul><ul><li>Have more energy during the day </li></ul>
  11. 11. Thinking at the Margin <ul><li>When you decide how much more or less to do, you are thinking at the margin. </li></ul>
  12. 12. Section 3 – Production Possibilities Graph
  13. 13. <ul><li>A production possibilities graph shows alternative ways that an economy can use its resources. </li></ul><ul><li>The production possibilities frontier is the line that shows the maximum possible output for that economy. </li></ul>Production Possibilities Watermelons (millions of tons) Shoes (millions of pairs) Shoes (millions of pairs) 25 20 15 10 5 0 25 20 15 10 5 Production Possibilities Graph Watermelons (millions of tons) 0 a (0,15) 15 8 14 b (8,14) 14 18 20 21 12 9 5 0 A production possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0)
  14. 14. Efficiency <ul><li>Efficiency means using resources in such a way as to maximize the production of goods and services. An economy producing output levels on the production possibilities frontier is operating efficiently. </li></ul>Shoes (millions of pairs) 25 20 15 10 5 0 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph g (5,8) A point of underutilization c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S
  15. 15. Growth <ul><li>Growth If more resources become available, or if technology improves, an economy can increase its level of output and grow. When this happens, the entire production possibilities curve “shifts to the right.” </li></ul>Shoes (millions of pairs) 25 20 15 10 5 0 25 20 15 10 5 Watermelons (millions of tons) Production Possibilities Graph T Future production Possibilities frontier c (14,12) d (18,9) e (20,5) f (21,0) a (0,15) b (8,14) S
  16. 16. Cost <ul><li>Cost A production possibilities graph shows the cost of producing more of one item. To move from point c to point d on this graph has a cost of 3 million pairs of shoes. </li></ul>Watermelons (millions of tons) Shoes (millions of pairs) Shoes (millions of pairs) 25 20 15 10 5 0 25 20 15 10 5 Production Possibilities Graph Watermelons (millions of tons) 14 18 20 21 12 9 5 0 0 15 8 14 c (14,12) d (18,9)
  17. 17. <ul><li>Law of Increasing Costs – states that as production switches from one item to another more and more resources are necessary to increase production of the second item. </li></ul>

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