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Economic Choices

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Title: Economic Choices


1
Economic Choices
  • Economics Unit One (C E Unit 7)

2
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.

3
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.

4
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
5
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!!

6
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.

7
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.

8
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9
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10
What is the opportunity cost? is the benefit
greater than the cost?
11
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

12
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

13
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

14
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?

15
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

16
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

17
  • 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

18
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
19
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

20
Product Markets
Factor Markets
21
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

22
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

23
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

24
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

25
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

26
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

27
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

28
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

29
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
30
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

31
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

32
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
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