This document provides an overview of key economic concepts through examples and explanations. It discusses: 1) Scarcity and the factors of production. Scarcity means limited resources to meet unlimited wants. The factors of production are land, labor, and capital. Entrepreneurs combine these factors to produce goods and services. 2) Opportunity costs and trade-offs. Making choices requires giving something up. The opportunity cost is the best alternative forgone. Individuals, businesses, and governments face trade-offs. 3) Production possibilities curves. These graphs show the maximum amounts of two goods an economy can produce with limited resources. Moving along the curve shows trade-offs between alternatives. 4) Efficiency

1. What is ECONOMICS? Ch 1

2. Lunch Activity
Activity: each person has $10.00
$1.00 – slice of pizza
$.75 – pop
$.50 – water bottle
$1.75 – cheeseburger
$1.00 – ice cream cone
$.50 - fruit cup
$.25 – apple
$2.50 – salad
$.50 – bag of chips
$.50 – milk
$.25 – cheese stick
$1.75 – turkey sandwich

3. SCARCITY & THE FACTORS OF
PRODUCTION
SECTION 1 – HOW CAN WE MAKE THE BEST ECONOMIC CHOICES?

4. Scarcity & Choice
• Need – something essential for survival
• Want – something that people desire but that
is not necessary for survival
• Goods – physical objects that someone
produces
• Services – actions or activities that one person
performs for another

5. Scarcity & Choice (continued)
• Problem of limits
– Scarcity – principle that limited amounts of goods
& services are available to meet unlimited wants
• Scarcity versus shortage
– Shortage – situation in which consumers want
more of a good or service that producers are
willing to make available at a particular price

6. What is economics?
• The study of how people seek to satisfy their
needs & wants by making choices

7. Grocery store
Unlimited amount of cash
3 minutes

8. Entrepreneurs & the Factors of
Production
• Entrepreneurs – person who decides how to
combine resources to create goods & services
• Factors of Production – resources that are
used to make goods & services

9. Factors of Production
• Land – all natural resources used to produce
goods & services
• Labor – effort people devote to tasks for
which they are paid
• Capital – human-made resource that is used
to produce other goods & services

10. CAPITAL
• Physical Capital – human-made objects used
to create other goods & services
• Human Capital – knowledge & skills a worker
gains through education & experience

11. Benefits of Capital
• Extra time
• More knowledge
• More productivity

12. LAND
LABOR
CAPITAL
SCAVENGER HUNT

13. OPPORTUNITY COSTS
Section 2 – How does opportunity cost affect decision making?

14. Trade-Offs (continued)
• Act of giving up one benefit in order to gain
another greater benefit
Individual Level
Example:
Business Level
Example:

15. Trade-Offs (continued)
• Gov’t Level
– Guns & butter – idea that a country that decides
to produce more military goods (guns) has fewer
resources to produce consumer goods (butter)

16. Determining Opportunity Cost
• O.C. – most desirable alternative given up as
the result of a decision
Decision-Making Grid
Alternatives
Alternative 1 Alternative 2
Benefits of
choosing your
alternative
Benefits forgone
(given up) of
choosing the
alternative
Opportunity Cost

17. Economist thought on Opportunity Cost
Choosing
is
REFUSING
QUESTION
“Is choosing not to say something the same as agreeing with what is being done?”

18. Thinking at the Margin
• Process of deciding whether to do or use one
additional unit of some resource
• Cost/benefit analysis – decision-making
process in which you compare what you will
sacrifice and gain by a specific action
• Marginal Cost – extra cost of adding one unit
• Marginal Benefit – extra benefit of adding one
unit

19. Decision-Making at the Margin
Options Benefit Opportunity Cost
1st hr of extra study time Grade of C on test 1 hr of sleep
2nd hr of extra study time Grade of B on test 2 hrs of sleep
3rd hr of extra study time Grade of B+ on test 3 hrs of sleep

20. PRODUCTION
POSSIBILITIES CURVE
Section 3 – How does a natioan decide what & how much to produce?

21. Production Possibilities
• Production Possibilities
Curve – graph that shows
alternatives ways to use an
economy’s productive
resources
• Production Possibilities
Frontier – line on a
production possibilities
curve that shows the
maximum possible output
an economy can produce
Frontier

22. CAPELAND
0 5 10 15 20 25
5
10
15
20
25
Water-
melon
Shoes
0 15
8 14
14 12
18 9
20 5
21 0
shoes
watermelons (millions)
(millions)

23. Steps to creating your own curve &
chart
• Step 1: choose what to EXAMINE

24. Steps to creating your own curve &
chart (continued)
• Step 2: Figure out the MAXIMUM amount for
each product

25. Steps to creating your own curve &
chart (continued)
• Step 3: Start figuring out the opportunity costs
by creating a possibilities chart
Possibilities

26. Steven Levitt
Book that examines &
demonstrates reasons
behind people’s decision
making

27. Efficiency, Growth, & Cost
• Efficiency – use of resources in such a way as
to maximize the output of goods & services
– Underutilization – use of fewer resources than an
economy is capable of using
Efficiency
Underutilization

28. Efficiency, Growth, & Cost (continued)
• Growth

29. Efficiency, Growth, & Cost (continued)
• Cost
– Law of increasing costs – economic principle
states that as production shifts from making one
good or service to another, more and more
resources are needed to increase production of
the second good or service

31. Technology & Education
• Technology brings better efficiency

32. Kitchen Challenge
• Objective: Raise the most money for the food
bank
• Breakfast must include:
– Main course
– Fruit
– Drink
• Budget: $500
• Time: 2 hours