Economic Choices

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Economic Choices

• Economics Unit One (C E Unit 7)

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Objective 1.02 Explain how scarcity influences
producers and consumers to make choices

• Basic Principles of Economics
• Economics is the study of how society manages its
  scarce resources.
• Scarcity means that society has limited resources
  and therefore cannot produce all the goods and
  services people wish to have.

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Objective 1.03 Compare examples of tradeoffs and
opportunity cost of economic choices

• Basic Principles of Economics
• Tradeoffs individuals and society as whole are
  constantly making choices involving tradeoffs
  between alternatives.
• Rational Behavior making decisions to achieve
  maximum fulfillment of goals.
• Different preferences and circumstances lead to
  different choices.
• Marginal changes small, incremental adjustments
  to an existing plan of action.

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Objective 1.02 Explain how Scarcity influences
producers and consumers to make choices

• Basic Principles of Economics
• Scarcity Decisions are based on resources
• Needs things you need to survive
• Wants things you would like to have
• Even the US does not have enough resources to
  produce everything or provide every service

or
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Objective 1.02 Explain how scarcity influences
producers and consumers to make choices

• Making Economic Decisions
• Trade-offs (Choices)
• The alternative you face if you decided to do one
  thing rather than another
• Opportunity cost
• The cost of an item is what you give up to obtain
  that item.
• the opportunity cost is the opportunity lost
• In other words, every economic decision involves
  giving up something. NOTHING IS FREE!!

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Objective 1.02 Explain how scarcity influences
producers and consumers to make choices

• Making Economic Decisions
• Opportunity Cost Examples
• The opportunity cost of watching TV on a
  weeknight is the benefit you could have gotten
  from studying economics.
• The opportunity cost of going to college is the
  income you could have earned by getting a job out
  of high school.
• The opportunity cost of starting your own
  business in the wages you give up by working for
  another company.

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Practice with opportunity cost

• I am going to show you a series of pictures.
• For each picture, write down the opportunity cost
  portrayed in each image.

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What is the opportunity cost? is the benefit
greater than the cost?
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Objective 1.01 Describe the basic factors of
production such as land, labor, capital, and
entrepreneurial skills and their impact on
economic activities.

• Producing Goods and Services
• Goods
• Tangible products like books and cars
• Services
• Work that is performed for someone else

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Objective 1.01 Describe the basic factors of
production such as land, labor, capital, and
entrepreneurial skills and their impact on
economic activities.

• 4 Factors of Production (a.k.a. Things needed to
  produce goods and services)
• Land or Natural Resources (gifts of nature)
• Fertile soil, coal mines, rainfall, land, trees,
  gas, agriculture, plants
• Renewable vs. Nonrenewable
• Labor
• Human resources
• Physical and mental efforts that people
  contribute to the production of goods and
  services

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Objective 1.01 Describe the basic factors of
production such as land, labor, capital, and
entrepreneurial skills and their impact on
economic activities.

• 3. Capital (capital goods)
• Money needed to start the business, tools,
  machinery, and buildings used to make other
  products
• 4. Entrepreneurship
• Individuals who start new businesses, introduce
  new products, and improve management techniques

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Objective 1.02 Explain how Scarcity influences
producers and consumers to make choices

• All societies deal with SCARCITY BY MAKING
  CHOICES
• What to produce is 1st choice of society
• Goods for defense or health care?
• How to Produce is 2nd choice
• Need more oil, do we drill in Alaska for it? How
  much pollution is acceptable?
• For Whom to produce is 3rd choice
• How will it be distributed amongst society? Who
  will receive the new car, where do we build the
  new school?

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Objective 1.03 Compare examples of tradeoffs and
opportunity cost of economic choices

• Costs and Revenues
• Types of Cost
• Fixed costs
• Costs or expenses that are the same no matter how
  many units of a good is produced
• Mortgage or property taxes
• Variable Costs
• Expense that change with the number of products
  produced
• Wages and raw materials
• Variable costs increase with more production and
  decrease with less production

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Objective 1.03 Compare examples of tradeoffs and
opportunity costs of economic choices.

• Costs and Revenues
• Types of Cost (cont.)
• Total Costs Fixed costs variable costs
• Many business focus on average total costs per
  unit
• Marginal Costs
• The extra, or additional, cost of producing one
  additional unit of output
• Bulk is cheaper than single output

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• Types of Revenue (pages 507-508 in textbook)
• Total Revenue
• number of units sold multiplied by the average
  price per unit
• 100 DVDs sold at 10 each 1,000 Total Revenue
• Marginal Revenue (always in terms)
• The change in revenue for producing one extra
  unit
• 101 DVDs sold means a total revenue of 1,010
  10 Marginal Revenue
• Marginal Benefit
• The additional or extra benefit associated with
  an action

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Objective 1.03 Compare examples of tradeoffs and
opportunity costs of economic choices.

• Costs and Revenues
• Cost-Benefit Analysis
• This analysis requires you to compare the
  marginal costs and marginal benefits of a
  decision
• Does the benefit outweigh the cost?

30 25 20 15 10 5
Law of Diminishing Return
0 5 10 15
20 25
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Objective 1.04 Analyze the impact on economic
activities of specialization, division of labor,
consumption, and production increases

• Economic Activity
• Circular flow of economic activity
• The consumer sector
• Buy, sell, and earn money in factor market
• The business sector
• Buy, sell goods, and buy services in the product
  markets
• The government Sector
• Receives most of its revenue from taxes, also
  buys and sells goods
• The foreign sector
• Purchasing and selling goods all over the world

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Product Markets
Factor Markets
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Objective 1.04 Analyze the impact on economic
activities of specialization, division of labor,
consumption, and production increases

• Promoting Economic Growth
• Productivity
• A measure of the amount of output produced by a
  given amount of inputs
• Examples
• Do more with less is good, efficient use of
  resources
• Mass production at factory vs. micro scale in
  your house
• Specialization (1st as far as importance)
• When a country, person or particular place
  focuses on one area of production

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Objective 1.04 Analyze the impact on economic
activities of specialization, division of labor,
consumption, and production increases

• Promoting Economic Growth
• Division of labor (2nd as far as importance)
• The breaking down of a job into separate, smaller
  tasks which are performed by different workers
• Technologies, Robotics, Inventions, Innovation
• Draw a Sheep, Cow, Owl, Hippo, Walrus, Elephant

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Objective 1.04 Analyze the impact on economic
activities of specialization, division of labor,
consumption, and production increases

• Promoting Economic Growth
• Human Capital
• The sum of the skills, abilities, and motivation
  of people
• Google, SAS, Education Training
• Economic Interdependence
• We rely on others and they rely on us for goods
  and services
• Katrina and gas prices

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Market Economies
• Pure market economy Everything based on free
  trade (supply and Demand)
• Individual freedom People choose what to buy and
  sell
• Market Economies are also referred as being
  Capitalist Economies

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Market Economies
• What makes it work?
• Markets
• Circular flow with consumer sovereignty (consumer
  is king)
• Economic freedom
• We make our own economic decisions
• Type of job/occupation when and where we want to
  work
• Type of product we will buy or sell

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Market Economies
• Capitalism Where private citizens own and use
  the factors of production in order to seek profit
• Free Enterprise Competition is allowed to
  flourish with a minimum of government
  interference
• What makes it work?
• Markets, economic freedom, private property
  rights, competition, profit motive, and voluntary
  exchange

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Market Economies
• What makes it work?
• Private property rights
• Freedom to own and use, dispose of our own
  property
• Also give us incentives because we can keep what
  we gain
• Competition
• The struggle between buyers and sellers to get
  the best products for the best prices
• Rewards the most efficient and punishes the least
  efficient

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Market Economies
• What makes it work?
• Profit Motive
• The driving force which encourages individuals
  and organizations to improve their material well
  being (big reason of growth in US)
• Voluntary Exchange
• Buyers and sellers freely and willingly engaging
  in market transactions

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Objective 1.03 Compare examples of tradeoffs and
opportunity costs of economic choices.

• Incentives
• Should a government offer economic incentives to
  production of take a laissez-faire approach?
• Location
• Subsidies
• Price

242 Million
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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• History of Capitalism
• Adam Smith and Capitalism
• Smith wrote a book describing the basic
  principles of economics
• Individuals seeking profit would benefit society
  as a whole in the end
• Vary laissez-faire economics (hands off approach)
  
• Governments role should be limited and to only to
  keep competition going, guiding it like an
  invisible hand
• When consumers needs and wants are met by
  producers the govt. need not be involved

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Command Economies (Opposite of Market Economy)
• In a pure Command Economy the individual has
  little to no say in the economy
• Major Economic decisions are made by the
  government (controlled economy)
• Socialism belief that the means of production
  should be owned and controlled by society
  directly or through government
• Karl Marx felt Socialism would turn into
  Communism (one class, all property held in
  common, and no need for government)
• Very inefficient, grow slower, and usually one
  central authority or planning agency
• Examples N. Korea, China, and Cuba

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Objective 1.06 Compare and contrast how
different economic systems address key economic
factors

• Economic Systems
• Mixed Economies
• Individuals carry on their economic affairs
  freely, but are subject to government
  intervention
• Protects the consumer as well as the producer
• Traditional Economies
• Based on custom or habit
• Mainly developing countries